Loan against property is a viable option to mitigate your immediate financial emergencies. Besides making use of the property as collateral, it is a secured loan, unlike personal loans.
Just like any other loan, the interest rates, repayment flexibility and tenure should be considered as crucial checkpoints before indulging in a loan with any lender. With numerous lenders available, the best scheme can be selected using property loan calculators. It enables borrowers to choose the best possible plan that synchronizes with their needs and financial appetites.
During the loan course, It is observed that as borrowers, we tend to repay the loan as early as possible.
What is Meant by Loan Prepayment?
Prepayment is a facility given by the lenders which allow borrowers to repay or part pay the loan amount before the tenure ends. However, the foreclosure charges for prepayment is levied on borrowers, and it varies from lender to lender. For a liability-free mind, it is often observed debtors often sought out for this measure.
Advantages of Choosing Prepayment in Property Loan
- The fact that there are no further deductions from savings towards EMI is a huge weight lifted from borrowers.
- With no monthly requirements, investors can opt for additional saving schemes that provide security and income growth.
- The property pledged as collateral is returned to the borrower’s ownership.
- Borrowers lose the upper hand on the tax deduction advantage.
- There is a possibility of fund exhaustion by the borrower through prepayment.
Though with all the advantages and the disadvantages as mentioned earlier on prepayment in loan against property, there are instances where it is not possible or advisable to not opt for it.
- The Prepayment Penalties are Exorbitantly High
Banks levy foreclosure charges of prepayment of the loan. These charges range from 1% to 5% as banks charge this to compensate for the interest lost through advance. Hence a practical cost analysis must be worked out. It deters borrowers from any additional high charges to be borne during prepayment.
- Better Options for investment Exist
There are many options for investment available in the investment market. From low returns to high returns, investors can choose based on their risk appetite and goals. Instead of bearing the foreclosure charges and exhausting funds, it’s advisable to deposit the additional fund into stable investment options. It thus ensures an income and growth of wealth.
- Prepayment Timing
The timing for prepayment is an essential factor to be pondered. Avoid prepayment during these two instances:
- Beginning of repayment tenure: The interest component on EMIs during the initial stages of loan prepayment is usually higher than the principal amount. Thus opting for prepayment immediately after paying off initial EMIs could incur more loss than gain.
- At the end of the loan tenure: Towards the end of the loan tenure, most of the loan and interest rates have been paid off. Hence prepaying at this stage should be avoided except when it proves advantageous during a cost-effective analysis.
- Loan Against Property Transfer
Although specific financial platforms facilitate Loan Against Property transfer, enabling borrowers to transfer property loans to lenders with lower rates. Nonetheless, borrowers are advised to work out the overall savings obtained through this measure. Borrowers can either approach professional or used online loan transfer calculators and then arrive at an informed decision.
Besides the personal comfort the prepayment of a property loan offer, borrowers are advised to weigh their decisions after conducting a cost-effective analysis and comparing the advantages, disadvantages and circumstances as mentioned above.