Loan Against Property

If you have some goals and to fulfill those goals you don't have money now, you don't need to think “From where I will get the money?” There are many ways to arrange the funds such as loans. You can take a personal loan or you can take a Loan Against Property.

Loan against property (LAP) is also called 'Home Equity Loans' and is sort of loan against the security of one's property. LAP is intended to meet the money related needs of a man who already owns a house, which is free from any encumbrance (i.e. it is not given as security for any reason). In other words, it actually connotes - a loan given or disbursed against the mortgage of property.

Loan Against Property (LAP) is a kind of personal loan which is secured in nature as the loan disburses against the mortgage of property. Loan against property is given for usually 60-70% of the market value of the property. The Loan against property can be taken from banks and financial institutions. Though your property is mortgaged with the lender, you can use the property for a commercial purpose, residential purpose or even can give the property on rent but you cannot sell the property. Loan against property is the preferred way to take the loan because it is easily available and it is also cost-effective loan. Now the question comes for what purpose we can take the loan against property.

Loan against property for a purchase or a refinance is usually not a standalone transaction; there are many other things for a Person to think about. Yes, loan officers can offer many programs to their clients, but it is also important for borrowers to be aware of their financial situation in a holistic manner.

Purpose to take Loan against property

As the Loan against property is a secured personal loan so you can utilize this loan the way you want to use such as:

  • For Higher Education of the children or other family members
  • For wedding of your Children
  • To finance your dream vacation
  • To fund medical treatment
  • To expand the business
  • To start a new business
  • To meet the credit needs of the business
  • To repair, renovate or extension of residential or commercial property
  • To purchase, construct residential or commercial property
  • To repay the existing loan

So you can do whatever you want to with money you get from the loan against property. Now the question comes when there are so many loans available in the market then why should we take the loan against property.

Why Loan against property

  • As the Loan against property is a secured loan so interest rate will be lower than the personal loan. The interest rate for Loan against property varies between 9.69% -14% per Annum.
  • Easy Eligibility- minimum age for taking the loan is 24 years and the maximum is 60 years if you are a salaried employee and 65 if you are self-employed.
  • Long Tenure- maximum tenure of loan against property can be 18 years but for a personal loan, it is only 5 years.
  • Repayment by Equated Monthly Installment (EMI)
  • Prepayment option is available
  • If you are using the loan amount for business purpose then you can show the interest as a business expense.

Now if you are convinced about the advantages of loan against property, you should also have an idea that how much interest you are going to pay and what other options you will get on an interest rate.

Loan against property interest rates

Loan against property is a secured loan so the risk is less for the bank because has the collateral. That’s why interest rates are little low and close to the base rate. Nowadays interest rate on loan against property is between 9.69%-14%. There are two types of interest rates which you can choose

  1. Fixed Interested Rate – In a fixed rate of interest rate will remain same throughout the loan tenure. If you think interest rate will increase in the future then you can choose fixed rate of interest for your loan against property.
  2. Floating Interest Rate – Floating rate of interest will keep fluctuating during the tenure of the loan. If you think interest rates will decrease in the future you can go for the floating interest rate for your loan against property.

Every year you will get an option to change the interest rate from fixed interest rate to floating interest rate and vice versa.

If you are sure that you are going to apply for loan against property to satisfy your financial need. You should also check some common eligibility criteria.

Loan against property eligibility

Eligibility criteria for loan against property vary from bank to bank but some common factors which all bank consider are:

  • The person should be an Indian National.
  • The person should be at least 24 years old and maximum 60 years old in the case of a salaried individual and 65 years in the case of self-employed professional or businessman.
  • The person must have a regular income to repay the loan.
  • Banks also check your debt obligations and the capacity to pay all of them.
  • The person should have good Cibil score and history of timely payments of all loans, EMIs, credit card payments, etc. This can help to secure a lower interest rate and reduced loan processing time.

If you are eligible for loan against property then the question is how the amount of EMI calculated which you have to pay every month? The answer is here.

Loan against property EMI calculator

EMI calculator helps to calculate the Equated Monthly Installments which you have to pay every month to repay the loan. EMI includes the principal amount as well as the interest amount.

How to calculate EMI

EMI depends on 3 factors loan amount, tenor and rate of interest. To calculate EMI simply put all information in the required fields in online EMI calculator for a loan against property and you will get your EMI details instantly. To use the EMI calculator is very easy you just have to fill the information such as:

  • Principal loan amount
  • Tenure of the loan
  • Rate of interest

There are some documents which you need to submit to proceed your loan application.

Loan against property Documents Required

Document requirement depends upon whether you are salaried or self-employed professional or self-employed businessman. Most of the banks and financial institutions generally require the same kind of documents for the loan against property. The document required for loan against property is as follow:

Salaried Individuals

Self-Employed Professional/ Businessman

Application Form with Photograph

Application Form with Photograph

Proof of Residence and Identity

Proof of Residence and Identity

Salary slip of last three months

Certificate of academic qualification and Proof of business existence

Form 16 issued by present employer

last 3 years Income Tax Return (ITR), Profit and Loss Statement and Balance Sheet

Bank statement of last 6 months of salary account

Bank statement of last 6 months

Cheque for processing fees and other charges

Cheque for processing fees and other charges

 

If you are choosing loan against property then you must know some important thing about the loan against property.

Things to Know before taking a Loan Against property

  • Bank or financial institution will charge a processing fee generally .05%- 3% of the loan amount which is payable upfront. You can either pay the processing fee by cheque or it will deduct from the disbursal amount of loan. You can also negotiate with the bank for the processing fee.
  • If any point of time after 180 days of disbursement of the loan you want to repay the entire loan you can pay but pre-closer charges will be applicable. 
  • If you show the income of at least 3 members of your family or business partners your eligibility of getting a loan against property will increase.
  • Before taking a loan against property compare the interest rate with at least 3-4 banks. 
  • If you choose a longer tenure of the loan your interest rates will be high.
  • Sometimes banks waive off the processing fees but they increase the interest rate.
  • Before signing the documents please check all the terms and conditions.
  • Do not sign the blank papers even if it takes a little long time to fill it up.

After getting the loan, try to repay it on time so that you will be able to maintain a good credit history with the bank. Though there are so many advantages of loan against property but the main disadvantage of loan against property is if you will not be able to pay the loan bank or financial institutions can take possession of your property and can sell it.