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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Frequently asked questions
Loan Against Property
Features and Benefits of Loan Against Property
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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
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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
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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
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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
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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
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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
Applicable Charges for Loan Against Property
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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.
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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.
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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
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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
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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
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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
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Greater ease of loan repayment within stipulated tenure: Repaying your loan borrowed against the property would become easier
Frequently Asked Queries - Loan Against Property
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