Loans against property, also commonly known as property loans, are a type of loan offering that home loan borrowers avail of against a property they own. This property could be residential or commercial. The LTV ratio for these loans can go up to 70% of the pledged property’s current value. Private lenders generally sanction a higher loan amount than public banks. Thus, loans against property are one of the few loan options that give borrowers access to a substantial amount of money. Before we discuss how to choose the right property loan tenor, let us first walk our readers through the benefits of a property loan.

Loan Against Property: Benefits

1. Low Interest Rates: Loans against property attract a low rate of interest. Property loan interest rates start from 8.50% per annum. Thus, property loans are the second cheapest loans after home loans. Low-interest rates help borrowers repay these loans easily.
2. Long Repayment Tenor: Property loan borrowers can choose to repay their loan over a period extending up to 18 to 20 years. Such a long repayment tenor eases the burden of loan repayment and helps one keep their EMIs affordable.
3. High Loan Sanction: As mentioned before, loans against property are one of the few loan options that give borrowers access to a substantially high loan amount. Under loans against property, borrowers can borrow up to 70% of their property’s value. Thus, with a property valued at Rs.1 Crore, one can easily get up to Rs.70 Lakh as a loan.
4. Zero End-Use Restrictions: Loans against property funds come with zero end-use restrictions. Borrowers can use the money as they please.

Owing to these benefits, loans against property have become quite popular these days. Let us now understand how to choose the right property loan tenor.

How to Choose the Right Property Loan Tenor

When it comes to loans, especially long-term and big-ticket loans, loan EMIs take up a considerable portion of one’s income and therefore, people want to become debt-free as quickly as possible. If becoming debt-free quickly is high on your priority, then you must opt for a short tenor. If you keep your property loan tenor too short, your interest outgo on the loan will reduce too and therefore, the cost of borrowing will come down as well. However, a short tenor can also increase your EMIs and even make them unaffordable. A short tenor also increases the chances of loan default.

On the other hand, if one opts for a long tenor, they can make their loan EMIs affordable. However, with a long tenor, the total interest outgo on the loan increases and so does the cost of borrowing the loan. Therefore, borrowers should try to not go for the longest loan tenor.

So, how does one choose the right property loan tenor? In the case of property loans, one should try and strike the right combination between affordable EMIs and the minimum interest outgo. So, one should try and keep their EMIs as affordable as possible while also keeping the interest outgo as less as possible. However, if a borrower can afford high EMIs, they should opt for a short tenor and become debt-free as quickly as possible. If affordability is an issue, they should opt for a long tenor and keep their loan EMIs affordable without worrying too much about the total interest outgo.

Borrowers can use a loan against a property calculator to figure out the right loan tenor for them. The loan against property EMI calculator is an online tool that borrowers can use to figure out the right combination of loan tenor and loan value for them.