Debt management is an essential part of servicing any loan, primarily high-value credits like a loan against property or mortgage loan. It is one of individuals’ most desired financial products for addressing big-ticket expenses related to business and personal matters. This credit facility allows borrowers to mortgage any of their commercial or residential properties and obtain substantial funds to meet their unforeseen expenses.
Since borrowers mortgage their valuable assets for availing funds, one needs to be careful with the repayment and avoid certain mistakes when applying for the loan.
6 mistakes to avoid while availing LAP
As already stated, a mortgage loan is considered a high value loan and can significantly impact one’s financial status. However, to ensure hassle-free repayment and promote a better borrowing experience, one should be cautious when apply for mortgage loan. These are the common mistakes aspiring borrowers can avoid while availing a LAP:
- Not assessing credit requirements
Before availing any credit, it is vital to decide the exact amount one needs to borrow. A mortgage loan can be substantial based on an asset’s present resell or market worth. Moreover, lenders sanction up to 75% of loan amount based on the property’s market value. Therefore, it often persuades borrowers to over-borrow exceeding their requirements. Over-borrowing significantly increases financial stress and impact credit scores.
- Selecting for a wrong tenor
Repayment tenor plays a significant role in determining the overall borrowing cost and EMIs. Opting for an extended tenor reduces monthly instalments and increases overall interest outgo and vice-versa. Moreover, a loan against property offers a tenor of up to 20 years, allowing borrowers to choose a suitable tenor for them. Hence, individuals must opt for a tenor by assessing their repayment capacity. Borrowers can go for a shorter tenor if they can afford to pay higher EMIs without defaulting or straining their finances.
- Failing to compare interest rates
Before applying for a loan against property or any credit facility, individuals need to carefully research and compare interest rates. Since collateral is associated with this type of loan, one should carefully assess and choose the best deal in the market. Being a secured advance, interest rates are comparatively lower than other loans. Every financial institution, have their own set of interest rates, and if they are not compared carefully, individuals end up paying additional money in the form of interest rates.
Usually, financiers offer interest rates by considering risk factors, borrowers’ creditworthiness etc. Hence, it is crucial to be mindful of the factors affecting mortgage loan interest rates.
- Overlooking eligibility parameters
By meeting lender-specific eligibility parameters, borrowers can ensure a guaranteed loan approval. As per the TransUnion CIBIL report, the demand for LAP significantly reduced to 7.6%, which clearly states lender’s reluctance of approving loan. Therefore, it is time for borrowers to check loan against property eligibility criteria.
Some of the basic requirements include-
- Type of property
- Employment type
- Credit score
- Monthly income
Fulfilling these parameters will allow borrowers to avail better interest rates.
- Not considering additional charges
Based on lenders, a loan against property is accompanied by a certain percentage of processing charges. Since LAP is a high-end credit, the processing fee matters. If the charges are higher, it will significantly affect the borrowing cost. Besides, borrowers must also consider the prepayment and foreclosure charges. If these charges are overlooked initially, they can become a serious concern later.
- Not estimating loan processing time
Usually, disbursal time relies on the lender and also on the financial product that one is availing. The processing time of a loan against property can take at least two weeks as lender needs sufficient time to evaluate the mortgaged property. Therefore, if the individual requires funds urgently, they can seek lenders taking the least time for loan disbursement.
In this regard, some reputed financial institutions take the shortest time for disbursing loans and extend pre-approved offers on a wide range of secured and unsecured financial products. These offers significantly reduce the hassle of extensive documentation and save time. To check your pre-approved offer, mention your name and contact information.
Apart from avoiding these mistakes, one must maintain an emergency fund to eliminate the chances of defaults. This way, customers can borrow a mortgage loan conveniently and maximise their benefits.