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Considering a Mortgage Loan (LAP)? Follow These 5 Rules

Posted by Tusharsingh321 in Finance on August 1st, 2019

Using your existing property to finance a forthcoming monetary need is not only a viable option but also the best thing to go for. In financial language, this is generally known either as Mortgage Loan or Loan Against Property (LAP). As the name suggests, a customer applying for this type of loan has to keep an owned property with the lender as the mortgage. The mortgage is kept as security so as to recover the loan amount if the borrower fails to repay the loan.

 

LAPs are easy to avail as the sanctioned loan amount is secured against a property with a higher value. A borrower with a mortgage loan enjoys a lower interest rate compared to other types of loans. Also, there is a fair degree of flexibility in choosing the amortization schedule. Having said all these, we also know that LAPs, in the last analysis, serve more to the lender than the borrower. Since a valuable property is kept as the collateral, the borrower must proceed carefully before applying for a LAP.

5 rules to learn while applying for a Mortgage Loan

Evaluate your needs properly

Having a highly valuable asset does not necessarily mean that you should apply for a higher loan amount. In the worst case, mortgage loans may end up in eating your property. Hence, it is advisable to calculate your financial requirements properly before deciding any amount. Evaluate your repayment ability so as to keep the debt to income (DTI) ratio as low as possible. Lenders also don’t sanction a loan, in which, the EMI exceeds more than 65 percent of your net income.

 

Pay EMIs on time

Make sure that you can pay the EMIs on time before applying for a LAP and choosing the reimbursement tenure. Missing payments affect you in the short- run as well as in the long run. First of all, the lender levies a heavy penalty, which needs to be paid along with the EMI within a stipulated time. Thereafter, it also translates into the poor credit history and eventually results in a lowering of the CIBIL score. Hence, try to pay EMIs on time and if you think that it would be difficult to cover a forthcoming payment, consider restructuring of the loan with the lender.

 

A high loan amount? Insure it as soon as possible

Defaulting a LAP with a high sanctioned amount will prove to be the most unfortunate event in your entire financial history. It is no less than a catastrophe as it affects you and your family as well. Invest a bit more and secure your Mortgage Loan with an insurance cover. This will help you significantly to deal in case of non-payment of the loan, in which, the lender can auction/sell your mortgaged property, otherwise.

 

Try to choose a short tenure

LAPs can be availed with a flexible repayment tenure of 5-20 years. However, you should choose a shorter period for reimbursement. This is because the tenure is inversely proportional towith the interest rate. A longer amortization tenure also brings a high- interest rate and vice versa. The EMIs may look less owing to a higher number of divisions, but when calculated properly, it makes the overall loan much more expensive than thought.

 

Compare interest rates

Comparing interest rates of different lending institutions always help in saving a fair bit of chunk. Also, comparing different interest rates is easier than ever. There are a plethora of financial websites that list interest rates of a number of lenders.

 

Read:- How To Avail Tax Benefits On Loan Against Property

 

Conclusion

Mortgage Loans (LAPs) are a popular credit option when it comes to financing anything in a cost-effective way. Banks also don’t hesitate a bit while extending secured loans, where they can recover the unpaid amount easily. As for the borrowers, the aforementioned 5 rules will surely help in availing a LAP easily and managing it inefficiently.

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