LOAN AGAINST PROPERTY

Loan Against Property (LAP) or mortgage loan is a type of secured loan offered by banks and Housing Finance Companies (HFCs) against commercial or residential property owned by the borrower. The amount, which is availed by keeping the property as collateral till the loan is fully repaid, can be used by the borrower for various purposes like expanding a business, funding children’s education, meeting medical expenses, and more. The maximum loan amount provided under LAP can go up to 70% of the property value.  Along with being cost-effective, loans against property are reasonably convenient to avail and repay due to the relatively low mortgage interest rate.

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Loan Against Property

Features and Benefits of Loan Against Property


The availability of higher loan amount and the flexibility to use the amount for various purposes make LAP a better option compared to a personal loan. Mentioned below are some of the features and benefits of availing a Loan Against Property.

  • The loan is available against self-occupied residential property, such as house, apartment, flat, etc.
  • It is also provided against rented residential properties.
  • It is available by mortgaging commercial properties like an office building, malls, shopping complex, shops, etc.
  • It can be taken against a plot of land owned by the borrower.
  • Available for both salaried and self-employed individuals.
  • It comes with flexible tenure and lower interest rate compared to personal loans.
  • Interest paid for the Loan Against Property provides tax benefits under Section 37 (1) of the Income Tax Act, 1961.
  • If the amount is used for funding a house, the interest paid on the loan provides tax benefits under Section 24 of the Income Tax Act, 1961, up to an amount of Rs. 2 lakh




Factors affecting LAP Interest Rates


The interest rate offered for Loan Against Property is not just limited to the bank. Various other factors affect and play a decisive role in the determination of interest rate applicable on LAPs. These are:

  • Loan tenure: The duration of loan repayment affects the interest rate of the loan. Shorter tenure means higher EMIs. However, in case of shorter tenures, the lender might go for a higher interest rate
  • Borrower’s credit score: Credit score is another important factor affecting the interest rate of the loan against property. A higher credit score of 700 and above helps get loans at lower rates, while those with a low score might have to pay higher interest rate
  • Borrower’s profile: A borrower’s age, nature of work (salaried or self-employed), income are some other factors that affect the loan interest rate
  • Type of property mortgaged: Age, condition of the property to be mortgaged and its market value also affect the rate of interest for loan against property




Loan Against Property ( LAP ) Eligibility Criteria


The eligibility criteria for availing LAP varies from provider to provider. However, to provide you with an overview of the minimum requirements, mentioned below are some general conditions.

  • Applicant must be an Indian national
  • He/She should be at least 21 years at the time of submission of the loan application
  • Applicant must have been employed by the current organisation or should have been involved in the current business for a specific number of years
  • Applicant must have a good credit score, demonstrating his/her history of successful repayments




Documents Required for Loan Against property


For Salaried Individuals: Duly signed application form with photograph(s) Identity proof, address proof and age proof Salary slips of last 3 months Bank statements Latest Form-16 and Income Tax Return (ITR) details Title documents of property Proof of total work experience For Self-Employed: Duly signed application form with photograph(s) Identity proof, address proof and age proof Financial statements, including balance sheet, profit and loss account statements Bank statements Income Tax Return (ITR) details of last 3 years Title documents of property Business existence proof




Applicable Charges for Loan Against Property


While availing a mortgage loan, certain charges are levied by the banks or the HFCs to process the loan. This amount varies from bank to bank and should be considered while selecting the financial institution. Let us take a look at these charges.

  • Processing Charge: It is a necessary fee payable at the time of loan application. Even if the loan is rejected, the processing charge would be forfeited by the financial institution.
  • Foreclosure and Prepayment Charges: If the borrower wants to pay off the complete loan amount before the due date, it is called foreclosure. In case, the borrower decides to pay a part of the loan amount before time, it is called prepayment. For both prepayment and foreclosure, banks levy a charge on certain categories.
  • Other Charges: Some common charges include legal fee, documentation charges, stamp duty, technical evaluation fee, title search report fee, etc.




Prepayment of Loan Aginst Property


A distinctive feature of LAP is the flexibility to prepay the outstanding loan amount any time during the loan tenure. As per latest RBI guidelines, no prepayment charge is levied in case of individual borrowers, who have a floating rate of interest applicable on their loan against property. However, corporate entities are still charged a certain fee for prepayment, but it is minimal. Prepaying your loan amount helps to bring down the outstanding principal amount. Benefits of Prepayment of Loan Against Property Prepayment of the outstanding amount under Loan Against Property offers various benefits. Some of them are:

  • Reduced loan tenure: Prepayment of the loan helps in reducing the outstanding amount. This feature can be utilised in reducing the loan tenure so that you can get over the liability as soon as possible
  • Cost-saving on EMIs: Once you have prepaid the loan, the amount to be repaid decreases, thus, the monthly instalments of the loan also go down
  • Reduced interest cost: As part of loan prepayment, you pay the principal amount first, which ultimately reduces the interest amount. This helps to reduce the interest cost
  • Greater ease of loan repayment within stipulated tenure: Repaying your loan borrowed against the property would become easier




Frequently Asked Queries - Loan Against Property


Q1. Is it mandatory to have a co-applicant for availing LAP? A co-applicant for loan against property is mandatory only when the property being mortgaged is owned by more than one person. In such a case, all co-owners of the property need to apply as co-applicants. Q2. How is the value of a property calculated? The market value of a property is estimated in terms of money that it can raise if it is sold at prevailing conditions. Q3. What types of properties are accepted by lenders providing Loan Against Property (LAP)? Different lenders have different criteria for the type of property to be accepted against a mortgage loan. However, mostly all financial institutions accept residential, commercial or industrial property. It is important to note that the physical condition and age of the property may affect its acceptance by the financial institution. Q4. What is the maximum loan tenure available under LAP? Mostly, the tenure of a loan against property goes up to 15 years. However, this may vary from one lender to another. Q5. Can NRIs avail loans against property? Yes, there are several financial institutions that offer loan against property to NRIs. Q6. Do banks accept uninsured property to sanction loan against property? No, in most cases, the property mortgaged to avail a loan against property needs to insured.





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