Sometimes, taking out a loan becomes necessary when you need a substantial amount of money to purchase an asset, renovate your home, buy a car, pay tuition, or consolidate debt with a higher interest rate.
Property-backed loans are loans in which the borrower pledges a local property as security, allowing the borrower to access funds of up to 80% of the property’s value.
Here are 3 crucial things to know when getting such loans.
- Difference between a secured loan and an unsecured loan
Secured and unsecured loans are the two types of loans you can apply for in Singapore.
A property-backed loan is considered a secured loan as it uses a local property as collateral against your debt. If the borrower defaults on their loan, the lender or financing company will own the pledged property.
Generally, a secured loan will have lower interest rates than an unsecured loan because the lender assumes that they are taking on less financial risk with the collateral provided to them. Aside from that, as a borrower, you can take tax deductions for the interest paid on your loan every year.
On the other hand, an unsecured loan is a type of loan that does not require the borrower to secure any collateral against the loan. Instead, you will be granted a loan based on your ability to repay your debt. Because of the risk of this type of loan, lenders typically charge higher interest rates. Plus, it may be harder to obtain since you need to prove to a bank or lender that you can and will repay the loan.
- How to apply for a property-backed loan
If you wish to take out a considerable amount of funds, it’s best to apply for a property-backed loan. Here’s how to apply for one.
- Submit an application for a home equity loan to a financing company. You will be provided with various customised borrowing options so you can have more control of your financial arrangements.
- Provide the necessary documents. The lender will require you to furnish them with various documents, which they will use to verify the details you have provided to them. The sooner you submit all the required documents to them, the faster you will be approved for a loan.
- Verify your information. Dedicated agents will check your asset valuation and income to ensure validity.
- Sign a contract. Once all the documents you have submitted have been verified, you will now be eligible for a loan. Upon approval, the funds will then be released to you, and you will also be asked to sign the contract.
- Who can benefit from a property-back loan?
- An investor who has built a property portfolio and wants to pursue a business opportunity through a commercial property loan or other loan products to obtain substantial capital.
- A property owner looking to free more capital via a property mortgage loan in Singapore but may not qualify for a remortgage due to the total debt servicing ration difference.
- A property owner enjoying good rental returns on a property and does not plan on selling the property anytime soon.
- A property owner who foresees significant capital gains in the future.
A secured or property-backed loan comes with many benefits for those seeking liquidity of funds for emergencies, business ventures, etc. To get the best value for your loan, consider getting a home equity loan.
At OxProp Capital, we are committed to providing our clients with reasonable and innovative financing solutions. Get in touch with us today for your first step towards financial independence!