Many consumers opt for a mortgage loan when they need funds. Loans where an asset is offered as collateral work out to be cheaper than unsecured loans. Many borrowers, therefore, opt for a loan against gold or a fixed deposit in emergencies. But if you are looking for a considerable amount, a loan against property is one of the preferable options.
According to data from Paisabazaar.com, the interest rates for loans against property start at 8.2%. But they can go as high as 14.5%, depending on the lender, credit profile of the customer, and property. Though Bank of Baroda is among lenders that offer better rates, the maximum interest rate it charges is also high. The interest rate starts at 8.2% and goes all the way to 13.85%. Indian Bank, on the other hand, offers rates between 10.5% and 10.65%.
View Full ImageInterest comparison on loan against property.
As a borrower, be mindful of the processing fee, maximum loan amount, and tenure in this product. Keep these three criteria as the key to choose your lender.
Lenders charge between 0.5% and 2% of the property value as processing fee. However, they have a cap on the maximum fee they would charge. For example, the Bank of Baroda charges a maximum processing fee of ₹1.5 lakh, the State Bank of India and Canara Bank charge a maximum of ₹50,000.
There are also cap on the minimum and maximum loan amount. Bank of Maharashtra, Karur Vysya Bank and Tata Capital offer maximum loan amount of up to ₹3 crore. Some lenders, like Bank of Baroda, Union Bank of India and Canara Bank, offer a maximum loan of up to ₹10 crore.
Most lenders give a maximum tenure of either 15 or 20 years. However, Bank of Maharashtra and Canara Bank offer loans up to 10 years, and Karur Vysya Bank for up to 100 months (a little over eight years).
Processing fee and tenure can impact your loan drastically. A difference of ₹1 lakh as a processing fee is significant. The difference in the term can impact equated monthly installment (EMI) as well as total loan outgo.
Suppose a borrower takes a loan of ₹50 lakh at an interest rate of 10% for 10 years. The EMI will come to ₹66,075, and the total interest outgo will be ₹29.29 lakh. If the same loan is for 20 years, the EMI will come to ₹48,251, and the total interest outgo will be ₹65.80 lakh. So, strike a balance between the two.
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