When you step into the world of real estate in order to get your dream home, the effect is definitely going to be overwhelming. It is a market full of unlimited possibilities where anything can happen anytime. When it comes to mortgage loans, one of the biggest finance options is Loan against Property. Investing money in property is considered safe for the present as well as future generations.

This type of loan provides numerous benefits comprising the fact that it can be used for varied purposes such as education expense, debt consolidation, wedding expenses, going on vacation, education expenses, medical emergencies, and other personal needs. There are many financial institutions which provide high-value loans that can be repaid back with tenure of your choice. Irrespective of the benefits, there are some common myths related to loan against property. Here are few of them:

Also Read Key Points To Consider Before Taking Loan Against Property

Better credit score ensures fast loan approval

The credit score is surely one of the factors used for calculating the loan applicant’s creditworthiness. Other factors consist of monthly income, age, job stability, employer profile, location, current monthly installment commitments, property, location, title, and others. But if the criteria are not met then, it may lead to rejection of your loan against property application.

Lowest interest rate of Loan against Property

The rate of interest is also one of the factors considered while choosing a lender for a loan against property. The other things to note are loan-to-value ratio, tenure of the loan, and processing fee. For instance, the bank or NBFC that you are availing loan from may ask you to choose a lower LTV ratio thus, meaning that you will have to put in higher down payment money.

Some financial institutions charge a lower rate of interest for people taking loans for a longer tenure. Similarly, lenders offering lesser interest rate may charge a higher processing fee and other charges. Therefore, it is important to take a comprehensive view at the time of assessing numerous loan offers rather than restricting it to interest rates.

Only residential properties can be mortgaged

People have a big confusion that loan against property restrictedly applies to residential properties only. This is however not completely true as a financial institution is worried more about getting an asset as collateral and it does not matter to them whether the concerned is commercial or residential property. Apart from this, the loan can also be taken against properties which are self-occupied or have been let out.

Borrow loan amounting to the full value of property

Normally, when you apply for loan against property, your approval is considered due to a number of factors. One point to note is the existing market value of the property. Once the bank or NBFC determines this, it arrives at a sanction on the basis of the loan-to-value ratio. The rate differentiates from lender to lender; you can avail anywhere between 75%-90% of the property’s value as a sanction.

Possess high income or revenue

Although the financial institution looks into the applicant’s income but it is not necessary to fall under the high-income bracket. The lender just wants to ensure that the person is capable of timely repayments and only grants the loan depending on the applicant’s source of income. Therefore, the banks or NBFC just checks whether you are financially organized or not rather than analyzing the income bracket.

Penalty for prepayment

The Reserve Bank of India (RBI) has restricted NBFCs, banks, and HFCs from penalizing pre-payment or foreclosure of floating-rate loans. This step has made it easier for floating rate loan against property borrowers to make pre-payment or foreclosure loans without acquiring any sort of prepayment penalties.

Property insurance is not a responsibility to the borrower

The majority of loan against property contracts state that the applicant’s property must be protected against natural calamities such as fire, flood, and many others. The lender can add the cost of property insurance to the concerned loan availed by you. Along with the monthly installment, you will have to pay the premiums as well. Have clear talks with the lender about the same and come to a common ground or else you might end up spending a lot of money.

These were some of the myths related to loan against property. If you want to be aware of the same in a detailed way then, India’s best financial advisor, IndiakaLoan.com can help you. It not just offers you an opportunity to compare loan from private/public sector banks but also help you get the loan in a hassle-free manner.