How to Choose the Best Tenure for Loan Against Property
A Loan against Property seems to be an ideal choice for individuals who are in need of large funds for planning their wedding, medical emergencies, or those who want to invest in a certain business by keeping their property as collateral. As Loan against Property is a secured loan, the chances of the application form getting rejected are quite less. In addition, the applicable interest rate is low in the case of Loan against Property. It has also been boosted by the RBI’s decision to lower lending rates to banks*.
In addition to EMI and Interest rate, the Loan repayment tenure period is one of the most important factors to be considered while availing of a Mortgage Loan. Deciding upon the repayment tenure of the loan is quite essential as it affects the borrowing cost. The current financial health of the applicant, along with the loan required for the mortgage, must be considered while deciding upon the loan tenure period.
What do you mean by Loan Tenure Period?
It is the time period for which any financial lender sanctions a loan amount and during which time the applicant is liable to pay back the loan amount along with interest. The applicant repays the loan in the form of EMIs throughout the loan tenure period.
An applicant can choose to avail of a Loan against Property for a tenure period based on their income. For instance,
Salaried individuals can avail LAP for up to 18 years.
Self Employed individuals can avail LAP for any time between 2 to 20 years.
What Factors must be Considered while Deciding the Right Tenure Period?
Several factors can affect your repayment tenure when you avail of a Loan against Property. A few of them are as follows:
Loan Amount
The required loan amount has a direct impact on the loan repayment tenure period. The higher the principal loan amount, the longer will be the loan tenure period. However, a longer tenure period offers the benefit of lower EMIs, thereby reducing any financial burden. On the other hand, the interest amount increases with a longer tenure period.
Age
The current age of the applicant is another important factor that influences the loan repayment tenure for the LAP. If the applicant is between 20-30 years of age, then he or she can opt for a longer tenure period as the possibility of the applicant having a steady income source is quite high. In case the applicant is near the age of retirement, then he or she must consider a shorter loan tenure period as the income source gets affected post-retirement.
In case an applicant has a fluctuating income source, then it is best advised to opt for a longer tenure period. This is mainly because it will lead to lower EMIs, which can be paid without missing any deadlines.
Interest Rates and EMI amount
The latest announcement from RBI has declared the current MCLR rate at 6.7 – 7.5%**, which is one of the lowest in the last decade. The applicable interest rate, as well as the EMI amount which the applicant has to pay, plays a vital role while deciding upon the loan repayment tenure period. One can always opt for a shorter tenure period if they have to pay a lower interest amount. However, if one wishes to have a manageable lower EMI amount, then they must opt for a longer tenure period.
Any Existing Financial Obligations
The existing financial commitment of an applicant also plays a part in determining the loan amount and the loan tenure period. If an applicant has a lower financial liability, then he or she may be eligible to avail a loan with a longer tenure period and lesser loan amount.
Property condition
The age, market value as well as location of the property also play a vital role in determining the loan amount which an applicant can avail. This, in turn, directly affects the loan tenure period.
How can one choose the Right Tenure for a Loan against Property?
The following factors can help in determining the right tenure period for a Loan against Property:
Understanding one’s monthly income
By going through their savings and spending, one can determine an ideal way to determine the loan repayment tenure for an LAP.
It is better if one makes a list of their monthly commitments and the extent to which they can save before availing of the loan. One must also consider any existing liabilities such as credit card debt or any other loans before availing of the loan. Based on these factors, the applicant can decide on the EMI loan amount as well as the loan tenure period.
They are carefully assessing one’s Future Financial Prospects. The applicant should consider any future salary hike or increment while calculating their EMI amount for LAP. In this way, the applicant can opt for a higher EMI amount and, therefore, reduce his or her loan tenure period. Paying off a higher EMI amount can pose a problem initially until the increment happens, but in the long run, it will reduce the interest amount and loan tenure period.
References:
** https://m.rbi.org.in/rbi-sourcefiles/lendingrate/LendingRates.aspx#
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