Loan against property
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Sale is not the only option to unlock the value of your property. Mortgage can do the job for you
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— Photo: S. Ramesh Kurup
For liquidity: Property owners can use mortgage loans for investing in another property.
In recent months, there has been a slow-down in the advertisements of property loans. But action seems to have picked up in the case of mortgage loans. A number of banks have stepped up their focus on loan against property.
Till recently, the option of raising money against property was a choice used largely by the self-occupied and businessmen to tide over their liquidity requirements. With banks getting aggressive in this space it can be an option even for the salaried professionals.
The instrument too has become much more refined now and the interest rates have turned attractive. While home loans are being offered with an interest rate of 10-12 per cent, the mortgage loans or loan against property is slightly more expensive. According to banking industry sources, this rate tends to be in the region of 13-14 per cent and the tenure too is slightly shorter. For instance, generally, such loans are issued with tenure of 10 years though some banks offer up to a period of 15 years.
A number of banks, particularly private and foreign, are aggressive in this space. The loan amount, of course, depends on the value of the property and banks are less hesitant when the loan size is below 60 per cent of the property value. Such loans are also offered in the form of overdraft so that the interest burden depends on the usage of funds.
Suitability
Besides self-occupied professionals, loan against property can be an option even for those who are looking at their second or third property. Generally, banks till recently did not worry about the end use of the property and such loans were given for funding educational requirements or any other large expenditure and even borrowers did not use this option for investing in property. Now, with interest rates showing signs of stability, property owners can use the option for investing in another property.
The advantage is more so when the investor falls short of margin money for his second property. Besides the property owner, other borrowers in the form of co-applicants too can use the mortgage option, subject to certain restrictions. For instance, husband and wife can be one such option irrespective of the ownership.
Another big advantage with this loan is that it can be utilised even when a home loan is in vogue. For instance, if a property owner has taken a home loan for the purchase of a property with tenure of 10 years, he can mortgage the property with the same bank for utilising the loan later.
The second loan can be used for investing in another property if the individual has the ability to service the loan.
No tax benefit
No doubt, mortgage loan too is a property loan but it cannot get any tax benefit for the borrower.
The income tax benefit under Section 24 is available only on home loans. However, the interest component can be shown as business expenditure when the borrower is not a salaried employee.
Individuals would be better off if they keep an eye on their repayment capabilities before going in for property loan.
Since the tenure is short when compared with a home loan, the EMI burden tends to be slightly higher in the case of loan against property.
SRIKALA BHASHYAM
Bangalore
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