The most common question that borrowers ask lenders while applying for a loan is – “By when do I need to repay the loan?” The longer the repayment tenure, the better the acceptability of the loan among borrowers. Hence, you will often find borrowers flocking to loan against property or home loans more than anything else.
So, what is the repayment tenure of a loan against property, and how do lenders determine the term? This article will answer these two questions and many more in the following sections. But, before venturing further, let’s understand what a loan against property is and which factors have contributed to making it the most favored loan option for borrowers.
A loan against property is one of the most straightforward loan options for Indian borrowers. You can avail of a loan against propertyby pledging your residential or commercial property. The property remains in the lender’s custody until you repay the principal and interest. However, you can continue living in the mortgaged property during the loan tenure. This is the prime reason why borrowers prefer a loan against property – it allows you to put your idle asset (property) to use and get money for fulfilling life goals.
The low interest on loan against property and flexibility in end-use make it a popular loan option. The interest on loan against property starts at 9.50%, and almost anyone with an 800+ credit score can expect this low-interest loan. Moreover, you can use the loan amount for various purposes like house purchase or renovation, business expansion, debt consolidation, motor vehicle purchase, medical bills, and whatnot.
Now that you know the factors that make a loan against property popular let’s head to the section about repayment tenure.
Loan against property repayment tenure ranges between five (5) and twenty (20) years. However, some lenders cap the higher term at fifteen (15) years.
If you want to optimize your EMIs, it is better to choose the repayment tenure carefully. A long-term reduce your EMI, but the lender might increase the interest on loan against property. By increasing the rate, lenders minimize their loan risks. Since an extended loan term also increases the possibility of a default, they often increase the rate to offset the impact should something negative ever happen.
In contrast, a short loan term might save some interest, but the EMI will be pretty high. Nevertheless, some borrowers prefer a short-term loan since it lets them clear off the loan quickly and become debt-free.
Hence, before deciding the loan against property repayment tenure, you must analyze your repayment capability and EMI to choose the correct loan amount.
Perhaps one of the biggest benefits of a loan against property is that you can prepay a part of the remaining loan amount anytime during the loan repayment tenure. Generally, lenders do not charge any prepayment penalty if your loan against property is on a floating rate of interest.
The EMI (Equated Monthly Instalment) consists of two elements – principal and interest. During the initial years of loan against property repayment tenure, your EMI has more weightage on the interest component, calculated on the principal. Therefore, by prepaying a part of the principal early, you can reduce the principal and the interest on loan against property.
The EMI amount and interest on loan against property depend on the repayment tenure. If you want an affordable EMI, opt for a longer-term. In contrast, if you frequently require loans for various purposes, a short-term loan against property can be your best bet. Remember, a loan against property is a financial liability, and it is prudent to plan the repayment well before applying for the loan.