Loan against property
- A loan against property (LAP) is exactly what the name implies a loan given or disbursed against the mortgage of property.
- Loan against property belongs to the secured loan category with less interest and longer repayment schedules where the borrower kept his property as Collateral security.
- Popularly known as LAP in the financial services circles, these loans are a convenient means to access funds at interest rates which are lower than personal loans or other forms of unsecured loans.
- To avail such loans, you offer an existing property as a security or collateral against which the lender– usually a Bank, an NBFC or a housing finance company — gives you a loan.
- The current market value of the property determines how much loan you can avail against the property. LTV (Loan to Value) varies from 40% to 70% of your Market Value.
Purposes for loan against property
Loan against Property can be taken for following purposes:
- Expanding your business
- Getting your son/daughter married
- For higher studies of children’s
- Funding your dream vacation
- For medical treatments
- Project Financing
- Working Capital
Normal interest rates and tenure for repayment of loan against property
- Interest rates on loan against property range from 12 per cent to 15.75 per cent
- The loan tenure can be up to 15 years.
Eligibility criteria’s to get a loan against property
These criteria will vary with bank/Financial Institution’s. However, Followings are the factors to determine eligibility and loan amount:
- The current market value of property and its current status.
- Current Income.
- The nature and continuity of employment/business.
- Current obligations i.e. the other Installments (EMIs) which are currently paid, the number of credit cards and credit limits used.
- Past credit history
- The purpose of availing such loans is also discussed with the lender and may have a bearing on the loan sanction.
Type of properties can be mortgage for a loan
Loans against property may be availed on:
- Residential properties
- Commercial Properties
- Industrial properties
- These loans can also be availed against a plot and not just against a constructed property.
Who can be the Co- Applicant?
- If the property is jointly owned by two or more individuals, all the co-owners of the property will need to come in as co- applicants of the loan.
- All Property owners has to be applicant or co applicant on loan, In case of partnership firm or company, partners and promoters directors respectively need to be co- applicants/Guarantor.
How it is different from personal loans?
- LAP is secured against property whereas in case of personal loans, there is no security offers as a guarantee to the lender.
- Personal Loan is high risk product as it is unsecured funding done by banks/ Financial Institution.
- Personal Loan is on higher rates of Interest wherein LAP is on lower rate of interest.
- Tenure of repayment for LAP is longer whereas repayment tenure is usually shorter in personal loans.
- In case of LAP, Loan Eligibility is considered on value of the property and income whereas in case of personal loan it is considered only by an individual income.
Documents required for this loan
- Application form with Photograph
- Identity and residence address Proof
- PAN Card
- Income Proof
- Last six month bank statement
- Processing fee charges
- Educational Qualification Certificate and Proof of Business Existence.
- Borrower can retain the property ownership.
- It is both on EMI based and Overdraft loan facility.
- It allows a bit of flexibility to the borrowers as the amount of loan can be Enhanced/Top up options are available with Bank/NBFC’/ Financial Institutions incase property prices increase.
- There are various circumstances when someone is in urgent need of money and you have to sell the property at distress value. In such a condition, Loan against property will be beneficial by making best use of the property lying idle.
- We can prepay the loan without any penalty charges.
- If the borrower is not able to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property.
- New businesses generally cannot avail this loan since they should been in existence for at least 3 Years. Salaries person can take this loan if they are employed over 1 year.
- There will be some processing charges that usually range from 0.5% to 3 %.
- Banks generally do not give more than 60% in case of residential property and not more than 50% in case of commercial property.