21 SEPTEMBER, 2022

A loan against property, also known as a mortgage loan, is a type of secured loan that is issued by lending institutions when the borrowers pledge their residential or commercial assets as collateral to procure the funding. The collateral is pledged to the lending institution for the entire duration of the loan repayment tenure. This arrangement reduces the risk of creating non-performing assets for the lending institution as the collateral holds the value to repay the loan in case of a default by the borrower.

Advantages of loan against property

The loan against property carries many benefits compared to the other type of loans available in the market. The advantages of taking a loan against property include:

1. The lending institutions can issue higher loan amounts as compared to what an unsecured loan would offer. This benefits the applicants who can get more funds to cover their needs.

2. This type of loan is highly secured through the assets being pledged by the borrower, and this, in turn, reduces the risk of non-repayment or defaults and enables a lower rate of interest.

3. A loan against property also comes with tax benefits for the applicants. The borrower can exempt the amount of interest paid towards the repayment of this loan; however, the purpose of taking this loan should meet certain conditions to avail of these tax benefits.

4. The repayment of a loan against property can be spread over a long tenure. Considering the considerable amount of the loan, the lending institution offers the borrower an option of longer repayment tenure.

5. The lower interest rate per annum ensures that the cost of the loan is not significantly impacted over a longer tenure.

Thus, the advantages of mortgage loan far exceed that of an unsecured loan. The borrower benefits from a lower cost of the loan and is also eligible to procure a higher loan amount as per the value of the pledged asset. 

Loan against property EMI Calculator

Any lending institution offers the borrower an option to repay the mortgage loan through equated monthly installments for a fixed tenure. The repayment through Equated Monthly Instalments makes the loan more affordable as the borrowers can repay by paying the EMIs against spending a lump sum from their savings. The EMIs include repayments towards the principal and interest on the loans. 

Calculating the equated monthly installments can be a tricky affair involving complex formulas and different inputs. A customer can alternatively use an EMI calculator to calculate the EMIs. In addition to this, the EMI calculators provide a list of other benefits as elaborated below:

Five benefits of using an EMI calculator while availing loan against property:

1. Calculation made easy: The calculation of EMI is a complex process involving a mathematical formula involving different variables. A consumer who wishes to apply for a loan against property can use the EMI calculators available online to derive the payable amount of EMI. The borrower needs to enter the property's value at the time of application, loan amount, rate of interest being charged by the lending institution, tenure of loan repayment, and processing fee (if applicable) into the loan calculator instantly calculate the EMI amount. The borrower can use the EMI calculator to validate the EMI amount mandated by the lending institution and can always review with the lender in case of any discrepancies.

2. Deciding the tenure: The EMI calculator can also assist the borrower in deciding the suitable tenure to repay the loans. The users can view the amount of EMI associated with different repayment tenure to choose what best works in their case. Selecting a suitable tenure can help the borrower reduce the cost associated with the loan. The borrower may need multiple permutations and combinations to arrive at the most suitable tenure of repayment, i.e., whether to pay a higher EMI for shorter tenure or go with a lower EMI for a longer tenure.

3. Prepayment of loan: The borrower may choose to prepay the loan ahead of its tenure, and this prepayment could impact the overall financials associated with the loan. The EMI calculator can also help the borrower analyze how the prepayment of the entire loan or a chunk of it would impact the overall costs associated with the loan.

4. Comparing different loans available in the market: Several lending institutions spread across the country offer a wide variety of loans per the consumers' needs. While these loans are similar, the terms and conditions mandated by each lender may differ. Consumers can use the EMI calculator to compare the loan offers from different lending institutions to finalize the loan offer that best meets their needs and repayment capacity. In addition to calculating the monthly EMIs, the EMI calculator helps in analyzing the overall costs associated with each loan. Using this feature, the users can narrow down the best options amongst the many available in the market.

5. Accuracy: As noted earlier, calculating the Equated Monthly Instalments (EMI) and cost associated with each loan offer involves a complex mathematical calculation involving different variables. This calculation, when done manually, is prone to human errors. It increases the risk of a wrong calculation influencing one's decision towards a loan offer that does not meet the requirement. Using an EMI calculator eliminates the risk of an erroneous calculation as these are very accurate and do not throw wrong results unless the inputs were entered wrong in the first place. The EMI calculators are a preferred option to eliminate human errors and are often referred to by customers and lending institutions.

EMI calculators can be used to calculate the costs associated with any loans. The online EMI calculators are usually provided on the website of the lending institutions and are free for use by anyone. Using an EMI calculator for loan against property is advisable as against the manual approach to calculate the EMI and the overall cost incurred towards the loan.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.