01 DECEMBER, 2021

A loan against property is a secured loan that you can avail from a bank or a financial institution by pledging your property as collateral. To avail a loan against property, you can furnish a residential, industrial or commercial property. Moreover, you can repay the loan in equal amounts called the equated monthly instalments (EMI) throughout your tenure.

The loan against property interest rate and tenure are the two factors that determine your EMI. The interest rates are decided by the lender, according to your eligibility and loan amount. However, you can choose a suitable tenure as per your financial capability.

Now, you might ask what is ‘suitable’, as choosing an ideal tenure can be confusing. But we are here to help. Here are factors that you must consider while deciding the loan tenure.

  • Age

You must consider your age while determining your tenure. If you are young and in your 20s and 30s, you can opt for a longer tenure as you might have a steady income source and ample time to pay the EMI. But if you are nearing retirement, you must opt for a short tenure so that you can repay when you still have income. If you are in your 50s or 60s and ask for higher EMI, the lender can reject your application.

  • Loan amount

The loan amount would be a significant determinant for your ideal loan tenure. If you wish to borrow a high amount, it would be better to opt for a longer tenure so that you can repay the loan amount comfortably over a prolonged period. Also, if your loan amount is high, the lender might not approve a short tenure fearing defaults. A longer tenure also eases the pressure on your monthly budget and reduces the chances of default. If your loan amount is small, it would be best to opt for a shorter tenure and pay off the loan faster.

  • Income

If your income is less, it would be better to have a long tenure to lower your EMI. However, also consider your income stability. If you have a stable and fixed income and have no plans to switch your job or profession, you can opt for a shorter tenure. However, if your income is unstable or your occupation is seasonal, it would be best to keep your EMI low by opting for a longer tenure to avoid missing EMIs. You can use a loan against property EMI calculator to find a suitable tenure.

  • EMI and interest outgo

If you have other EMIs or significant expenses to manage, you can opt for a longer tenure to get an affordable EMI. On the other hand, if you do not want a higher interest outgo on your loan, you can opt for a shorter tenure and pay a higher EMI.

While you must consider your current income and expenses, you must also assess your future financial prospects. Considering future income hikes or significant expenses can help you make an informed decision. Choosing the wrong tenure can put unnecessary pressure on your budget. Therefore, you must assess all the factors before choosing an ideal tenure for a loan against property.

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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.