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Leveraging Your Property To Fund Your Goals – A Complete Guide

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Borrowing money to enhance your financial capability is an intelligent move. A bank or a financial institution uses your property or assets as collateral to disburse a loan that you can use to manage your finances better. When done thoughtfully, leveraging your real estate investment helps maximize returns, save money and reach financial goals faster.

Most loans against property have a lower interest rate as compared to credit cards and personal loans. You can choose to take a quick loan against a property to clear multiple high-interest rate debts to give your finances a quick boost.

This will not only leave you with a single low payment but also save you on interest, simplify the payment and free up cash flows for your financial goals. The eligibility criteria for loan against property is also significantly less stringent compared to other loans.

Let us look at some of the ways you can leverage your property to achieve your goals.

1.  Loan Against Rent Receivables

You can easily take a loan against the future rental income from your property to fund your expenses and achieve your financial goals. Depending on the institution, you can acquire a loan amount of up to 50-80% of the rent’s receivable over the loan tenure. The rate of interest on such loans is generally between 11 and 14 percent.

Using such leverages to clear any outstanding bills will get you rid of stress and improve your credibility, thereby opening up new sources of finance to fund your goals.

Most people use these loans to deal with any unexpected expenses like medical bills from emergencies and illnesses. You can also use the funds towards a funding college education for your kids instead of taking on expensive student loans.

2. Home Equity Loan

As suggested by the name, a home equity loan can borrow money against the property value to fund expenses.

You can leverage a residential or commercial property and obtain about 50 to 65 percent of the property’s current value. The tenure for this type of loan is generally about 15 years, and the interest rate is around 11 to 15 percent.

This type of loan against property can be used to clear any lingering debt to get free of obligations and start saving for future finances.

You can also use the loan amount as a down payment towards a property purchase to maximize your returns and realize your financial goals faster. Such investment gives a good rate of return in the form of rent and provides long-term financial security.

3. Top-Up Loan

A top-up loan is an additional borrowing to an existing quick loan against property. This type of option is useful when the borrower wants to address an emergency. The amount obtained from this loan is generally calculated as the current value of the property minus the outstanding loan amount.

Such a loan is sanctioned for 20 years, and the processing fee is anywhere around 0.30-1% of the loan amount.

This type of loan is also ideal for home improvement and repair/maintenance expenses. Spending on home renovation increases the value of your property and, thereby the return on investment. Such options also help address any pending repairs and maintenance jobs for your property and save you from losses due to unaddressed problems.

4. Overdraft Against Property

One of the best ways to leverage your property is to take an overdraft against the asset. You can obtain up to 65 percent of the property’s value as a loan with an interest rate ranging around 12-14% and a tenure of about 10 years. You are charged a processing fee of about 1% of the loan amount in most cases.

5. Reverse Mortgage

A reverse mortgage loan is available to an elderly homeowner who borrows against the property’s value, either as a lump sum amount or monthly payments. Here, the borrower need not pay back the mortgage loan until the property gets sold or he dies.

You can obtain about 45-65 percent of the value of the property with this loan. It is generally a preferred option for many elderly property owners.

Leveraging your property is a great way to fund your financial goals and speed up their achievement. However, it is important to have a good repayment plan to realize the benefits of borrowing to the fullest.

Documents Required

For Salaried Individuals:

Proof of residence:

  • Ration Card
  • Telephone Bill
  • Electricity Bill
  • Voter’s ID Card

Proof of identity:

  • Voter’s ID Card
  • Employer’s Card

Latest Bank Statement/Passbook from where you can show a salary/income being credited for the previous 6 months

Salary slip for the previous 6 months showing all deductions

Form 16 for the previous 2 years

Copies of all the property documents of the concerned property to be pledged for the loan.

For Self Employed Professionals/Individuals:

Certified Financial Statement for the previous 3 years

Proof of residence:

  • Ration Card
  • Telephone Bill
  • Electricity Bill
  • Voter’s ID Card

Proof of identity:

  • Voter’s ID Card
  • Employer’s Card

Latest Bank Statement/Passbook from where you can show a salary/income being credited for the previous 6 months.

Also Read: Know What is Mortgage Loan and How to Apply for It

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