Top 5 Benefits of Taking a Loan Against Property

Many of you might be in a position where you want to sign up for a loan against property, perhaps a house or some commercial property. Or you might have some other event coming up like a wedding which requires a large investment, so you avail a loan. A property loan requires that you pledge the house or property as collateral to the lender until the entire loan amount is repaid. Compared to several other times of loan, a loan against property has several benefits. This article mentions some of them. 

What are the Benefits of a Loan Against Property?

Many of you might be in a position where you want to sign up for a loan against property, perhaps a house or some commercial property. Or you might have some other event coming up like a wedding which requires a large investment, so you avail a loan. A property loan requires that you pledge the house or property as collateral to the lender until the entire loan amount is repaid. Compared to several other times of loan, a loan against property has several benefits. This article mentions some of them. 

Top 5 Benefits of Loans Against Properties

1. The Loan is Secure 

Probably the biggest fear for every lender is that you will default on the loan. With loans against properties, that fear is considerably reduced as the loan is generally considered secure. This is because real estate has a high value, and the bank or lender can get back the exact or a significant amount of the principal back from the resale value of the property. Due to the lesser risk associated with it, lenders would be willing to lower the interest rates for a loan against property. 

2. Easy to Get With a Simpler Approval Process

As a consequence of being secure, banks and lenders are more willing to give out loans against properties compared to other types of loans. Individuals need to have a minimum annual income and businesses need to have a minimum turnover before they can avail a property loan. Basic documents like government ID proof, address proof, income statements etc. need to be submitted to the lender, but the overall scrutiny is much lesser. 

3. Repayment is Often Flexible 

Unlike other types of loans, the repayment tenure of a loan against property is much longer, typically around 15 or 20 years depending on the loan amount. This saves you the pressure of setting aside a large chunk of your income for loan repayment, even though the overall cost of the loan will be slightly higher. As a borrower, you also have the option of paying the loan amount as EMIs or with the help of overdrafts (i.e. you can continue withdrawing money even when the account has no funds, depending on your credit score and the value of the property. If you can afford to pre-pay the loan, most lenders and banks don’t charge you any penalty for it. 

4. Continuous Ownership 

During the period you repay the loan, you can live in and use the property you purchased; only if you default on the payment will you have to move out. So if you have bought a commercial property, even though you have not paid the entire principal, you can run your office or business in the premises (after officially declaring what you plan to do, of course). If you have bought a house with a 20-year repayment window, you also have the option of staying in the house for ten years, selling it to someone else at a higher price, using that amount to repay your loan and then moving elsewhere. By running a business on commercial properly or by investing in home improvement, you also increase the value of the asset when you plan to sell it in future.

5. Tax Benefits 

Based on the country you are in, the exact tax benefits you can get from a loan against property vary. In India, for example, according to Section 24 of the Income Tax Act, if your property is rented out, you can claim a maximum deduction of Rs. 2 lakhs on interest paid from the income earned. The numbers and rules vary slightly if your house is still under construction during the repayment period. 

Apart from this, there are additional HRA benefits and benefits for joint owners and first-time owners.

Conclusion

These are five of the ways where availing aloan against property gives you benefits over other types of loans. Most of the benefits indirectly lower the loan against property interest rate and that saves you a lot of money. So, the next time you want to take this loan, you are better equipped to realise the benefits.