Requirement of money can arise without any prior notice. In such circumstances, we usually look up to our friends and family or consider opting for a personal loan or gold loan to meet our immediate need for cash. You can also opt for a loan against your property if the amount required is more than what your friends or other loan types can get you. While many among us may be reluctant to mortgage our house but if you have a strategy in mind to tide over the current crisis, loan against property is an option you can consider. After all, your home is an asset that should not only give you shelter, but should also protect you and your family during the hour of crisis.
While this type of loan is good to raise large sums of money as the real estate prices escalate and increase the value of your home and your borrowing capacity increases, Mortgage loan is also good for fulfilling short-term requirements like child’s marriage, medical emergency etc. because the rate of interest is lower than personal loans and the repayment tenure longer.
Before opting for loan against property, it is essential to know three facts about it:
1. Compare the loan-to-value (LTV) ratio offered by various lending institutions
It is important you try and get the best deal for yourself. To do so, it is important to compare various banks online regarding the LTV ratio they are offering. Public banks usually offer up to 65% of the property value as a loan, while private sector banks can offer up to 75%. This variation is due to the manner in which the property is evaluated by banks or internal rules of banks that restrict the LTV offered.
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2. LTV of a commercial property is lower than that of your residential property
If you pledge your commercial property as collateral, the LTV offered will be lower than what banks offer on your residential property. Reason being: banks feel borrowers will try to save their residential property more ardently than commercial, thereby reducing the banks’ risk factor. Even though your property is collateral, banks are averse to a scenario when they have to take possession of your property to recover the dues. Further, a self occupied property will get you a higher loan amount than the one that has been rented out.
3. Interest Rate of loan against property
It is good to compare the interest rates offered by various banks before taking the plunge. Remember, it’s as much about every paisa saved as it is about every paisa earned. Comparing various options will enable you to get the best deal for yourself. The interest rates offered by banks are usually in the range of 8.70%-14%, which is much lower than interest rates of personal loan (11%-22%).
Table: Interest rates of top banks offering loan against property
|
Bank name |
Loan amount |
||
| < Rs 30 lakhs | Rs 30 lakhs > Rs 75 lakhs | > Rs 75 lakhs | |
| HDFC | 9.60-11.00% | 9.60-11.00% | 9.60-11.00% |
| ICICI | 11.85% | 11.85% | 11.85% |
| SBI | 10.35% – Salaried
11.00% – Self-employed |
10.35% – Salaried
11.00% – Self-employed |
10.35% – Salaried
11.00% – Self-employed up to Rs 1 crore (and 11.50%-11.80% for amount > Rs 1 crore) |
| Standard Chartered | 9.50% | 9.50% | 9.50% |
| IDBI | 10.10% | 10.10% | 10.10% |
| Axis Bank | 11.25% | 11.15% | 11.15% |