“A bird in the hand is worth two in the bush” is a good proverb that takes a 21st-century twist when you wish to take a loan against property.
Say, that you want to buy a house in the city but do not have the funds for it. However, what you do have is a plot of land in your hometown that is sitting idle. In such a case, you can simply put up the vacant plot of land (the bird in the bush) as collateral to procure a home loan. Thus, you get a home loan against property, and you convert your bird in the bush to a bird in the hand! Still not convinced? Here are reasons why you should be taking out a secured loan using your property if you’re looking to invest in a house:
- Easier to get a loan
Imagine this: Person A comes to you asking to borrow money for a few months. Just then, Person B comes asking for money. However, the Person B further offers to keep his expensive mobile phone with you and tells you that if he doesn’t return the money in the decided number of months, you can keep the phone. Now, whom are you more likely to lend the money? If you answered “Person B”, then you know why procuring a secured loan from a financial institution is easier. Since the institute has some form of collateral that they can sell/ auction if you do not repay the loan amount, they are more convinced to issue a loan to you.
- Faster processing
The processing time is short as the property you are willing to offer as collateral already exists. This is in comparison to the amount of time required to get a home loan. In a case where you need to pay for the house as soon as possible (maybe, because you are getting a good deal), this is a good loan option.
- Longer tenure, smaller EMIs
As mentioned earlier, the financial institution’s peace of mind knowing that there is collateral available in case of non-repayment of loan allows them to have more confidence in you. Hence, they provide longer loan tenures for you to repay the loan which effectively means that you can have smaller Equated Monthly Instalments (EMIs). This greatly reduces the burden of repayment.
- Borrower’s peace of mind
There is always a chance that the borrower may not be able to repay the loan in the stipulated time due to any number of reasons. That’s why it provides some relief to the borrower knowing that they have a repayment option to fall back on in case of such adversity. They do not have to worry about the house they bought with the loan amount being taken away by the financial institutions in the case of non-payment of dues.
Taking a home loan against your property is a good option but it is essential that you weigh the pros and cons of this loan against the other available loan types before arriving at a decision.