Accelerating the Repayment of Your Loan Against Property: Effective Strategies

A 'Loan Against Property' or mortgage loan, as the name suggests, is a loan availed of by mortgaging a property. Both loans against property as well as home loans are types of mortgage loans. However, in India, the term mortgage loan is synonymous with loans against property or property loans. So, in this article, we will discuss effective strategies to expedite the repayment of your loan against property.

Loans against property are loans availed of against a piece of land or residential/commercial property. The key difference between a home loan and a loan against property is that while in the case of the former, the property bought with the loan amount serves as collateral, in the case of the latter, a borrower avails themselves of a loan against a property they already own.

Loans against property come with a long repayment tenor; for instance, Bajaj Housing Finance offers a Loan Against Property tenor as high as 17 years. A long repayment period, while convenient, increases your interest outgo. If you are looking to repay your loan against property sooner, these handy tips can prove helpful.

1. Make a Prepayment Whenever Possible

Prepayment refers to the process of making lumpsum payments toward one's loan account. When a borrower prepays a loan, they reduce the principal amount. This way, prepayments either help reduce one's EMI amount or loan tenor.

If you want to become debt-free sooner, try and make at least one part-prepayment whenever possible. If you are a salaried individual, you can use funds from a bonus hike to prepay your loan. If you have saved money in the form of an FD and it is about to mature, you can use funds from the FD maturity to make a prepayment.

Similarly, you can also use funds coming in from any other investments to reduce the principal amount and make prepayments whenever possible. However, it is also important to ensure liquidity at any given point in time. An emergency can happen at any time, and you should not use emergency funds to prepay a loan.

2. Increase Your EMIs with Time

Property loan borrowers are advised to use a Loan Against Property EMI Calculator. This is a handy tool that borrowers can use to calculate their EMIs for the loan they wish to borrow. People borrow money based on the EMIs they can comfortably afford. However, people's repayment capacity increases as their income increases over time.

So, it is suggested that if you are repaying a property loan, then increase your loan EMIs to match any increase in your income. Doing so allows you to become loan-free sooner.

3. Never Miss a Loan EMI

When a loan EMI payment is missed, lenders charge a penal fee. Use a property loan calculator to calculate the loan EMI you can comfortably afford and apply for this loan amount or something lower to keep your EMIs affordable. Missing an EMI will only increase your cost of borrowing and the subsequent impact on your credit score will negatively affect your chances of availing of a loan in the future.

4. Borrow Only How Much You Need

Under a loan against property, typically up to 70% to 75% of a property's value can be availed of as a loan. Thus, loans against property are one of the few loan options that allow borrowers access to a substantial amount of money. However, just because one can access a substantial amount doesn't mean they should. Be prudent and borrow only what you need. This will allow you to repay the loan quickly and become debt-free sooner.

5. Opt for a Loan Against Property Balance Transfer

Loan against property balance transfer refers to the process of transferring one's property loan from one's current lender to another offering better loan terms and conditions. These days, most lenders offer this facility. By making use of this facility, loan against-property borrowers can get their loan refinanced and choose to go for a shorter loan against property tenor, provided their pocket permits them to do so. This will certainly help them become debt-free quickly. However, do keep in mind that all lenders treat loans against property or property loan applications as new applications and only those borrowers get approved for a balance transfer who meet the loan against property eligibility criteria.

Further, while opting for a balance transfer, as a borrower, you must try and avail yourself of the most competitive property loan interest rates to minimize the cost of borrowing and the burden of loan repayment. Keep in mind that loan against property balance transfers prove to be most beneficial when opted for during the early years of loan tenor and when there is a substantial difference in the new and old interest rates.