We often come across this popular term ‘Home Loan Against Property’ in the real estate and housing finance industry today. Loan against Property is a loan that you avail by pledging your real estate (commercial/residential Property) as collateral. The Loan Against Property is a secured loan. In this kind of loan, the Property owned by the person applying for the loan is kept as security. The value of your pledged Property determines the amount of loan you are likely to be sanctioned.
Types of Property against which you can avail a loan
You can avail loan against
- Self-owned Residential Property
- Self-owned and self-occupied Residential Property
- Self-owned but rented Residential Property
- Piece of land (Self-owned)
- Self-owned commercial Property
- Self-owned but rented commercial Property
What does prepayment of Loan Against Property means?
If one does not need it, it is a wise choice to repay a loan. After all, when you have cleared funds sitting in your bank account collecting only 4 percent interest, then paying interest on a loan costing over 10 percent doesn’t make sense.
A prepayment is a repayment, before the official due date, of a mortgage or instalment bill. Advance payment is made either for the whole amount of the debt or a payment in part received in advance of the date on which the borrower is obliged to pay contractually.
We should remember that if bought in an individual capacity, there are no prepayment penalties on Loan Against Property. But if it is acquired by a corporate company, in case of partial or complete prepayment of the loan, there will be prepayment fees imposed. Most banks do not charge any interest until the payment of the advance portion is made up to 25% of the principal outstanding in the financial year.
What are the Advantages of Loan against property prepayment?
Borrowers can part-prepay to put down the principal balance and save on future EMIs and the outgoing interest if you have a lump sum of money that is not equal to the remaining principal amount.
E.g. If you opt for a credit sum of ₹ 5 lakh at an interest rate of 12 percent for four years tenure, your EMIs will come to ₹ 13,167 per month. If you part-prepay ₹ 100,000, your EMIs will come down to ₹ 10,534, helping you to save ₹ 2,663 per month on your EMIs.
How to prepay your Loan Against Property?
Loan against property prepayment is a quick and hassle-free process. You can make part-payments by either increasing the EMI balance per year by a certain percentage or paying one additional EMI in the same year. Generally, in a year, lenders would not mind taking an extra EMI. When you get a bonus, make sure that your part-prepaying loan uses a certain percentage of it. You can prepay your mortgage loan/loan against Property by two methods –
Offline: Visit your lender’s branch from where you have availed the loan and ask the officials about the procedure to prepay your loan against Property.
Online: Prepay your Loan Against Property using these steps –
- Sign in your account with your credentials
- Look for options such as ”Payments” and then press ”Online Payment”.
- Reach out to the segment ”Part-prepayment”, and press on the tab ”Proceed” to begin the process of prepayment.
- Enter the amount you want to prepay, and after checking all the details, click on the ”Pay Now” tab.
- To continue with your order, you will be redirected to the ”Billdesk payment portal.” Make the payment after entering your card details.
- After the transfer of payments, the amount will be reflected after a couple of hours in your loan account.
Conclusion: After examining the points mentioned above, you may want to explore on which side of the fence you are sitting. You might be having excess liquidity or potentially sitting on surplus funds, so to repay a bit of your loan is a smart approach. Alternatively, to prevent reducing the effect of debt on your home purchase choice, you have paid a large portion of your loan. You, therefore, may wish to spend your surplus cash in other investment opportunities.