Loan Against Property

Loan Against Property: Features and Benefits

Following are the key features and benefits of a loan against property:

• A loan of up to 70% of the property's market value is offered.
• Flexible repayment terms make the loan against property rates competitive.
• Facilitates easy repayments through small monthly instalments.
• Quick processing, usually 3 to 4 days with minimal documentation.
• The applicant's age must be between 21 years to 65 years old.
• Flexible repayment tenure up to 20 years.
• Is available on plots, residential property and commercial property.
• Lower interest rates, starting from 11 percent.
• A loan amount of INR 5 lacs to INR 7.5 crores can be offered based on the property's market value.
• No additional collateral is required. 
• Availability of balance transfer on the existing loan.
• Minimal prepayment penalties may vary from one bank to another.

Loan Against Property Overview

A Loan Against Property (LAP) empowers you to use the funds tied with the property to satisfy any expenses you may have. While the LAP amount offered on the property is determined by its valuation, you have complete discretion over how you spend the funds. Your property serves as collateral for the loan, but you can use it as usual. 

In short, LAP is a secured loan provided by banks and financial institutions in exchange for a property pledged as security. The pledged asset can be the applicant's land, house or commercial property. The property stays as collateral with the credit provider unless the borrower repays the debt amount. 

However, the sanctioned funds are relatively higher, as the borrower can acquire a loan against property for up to 70 percent of the property costs. The loan against property interest rates are also lower than other loans, and its repayment terms are flexible.

Loan Against Property Eligibility Criteria

To secure a LAP with utmost ease, you must cope with the lender's loan against property eligibility criteria. You can also rely on a loan against property eligibility calculator to determine your eligibility for securing a loan. However, the property must be registered in the name of the loan applicant or other family member. 

Here's what you need to be prepared with:

Age Limit of the Applicant	21 to 65 years
Employment Status	Salaried Professional, Self-employed Individual
Annual Income	At least INR 3 lakh per annum
Work Experience	1 year to 5 years
LAP Interest Rate	9.8 percent to 16.50 percent per annum
Maximum Loan Amount	70 percent of the property’s market cost or to up to INR 7 crore
Credit Score	Applicant must have a credit score above 750
Repayment Time Frame	15 years to 20 years at maximum

Factors Affecting Loan Against Property Eligibility Criteria

Below are depicted the factors that affect the loan against property eligibility:

1) Credit History

Credit history is one of the most vital factors to evaluate a Loan Against Property application. The credit score of the borrower represents the repayment capabilities and credibility. A credit score reflects whether or not a borrower will be able to repay their loan on time. As a result, maintaining a strong credit history is essential.

2) Incomplete Property Documents

You must pay close attention to the documentation pertaining to the mortgaged property. Before applying for a Loan Against Property, ensure all of your documentation is in order. Documents such as title deeds, building blueprints, appropriate authority permissions, and property registration should be readily available. Keeping the documents required for a loan against property ready escalates the loan procedure and increases the approval chances.

3) Loan Tenure

A longer loan term allows you to get a loan faster and pay lesser EMIs. If you have a low income, you can always choose lengthier terms because these loans have a shorter term than a traditional home loan. You can count on a loan against property calculator to determine the repayment tenure that best suits you.

4) Borrower's Age

The age of the borrower is crucial in establishing the debtor's ability to repay the debt. The loan must be repaid before the borrower reaches the age of 65. If the debtor has already reached the mid-60s, there are chances of loan application denial. In this case, you may choose to look for loans with a shorter term, which will result in higher EMIs.

5) Regular Income Flow

One of the most important considerations is that the application must have a continuous and constant source of income, ensuring that the borrower has the financial means to repay the loan EMIs.

6) Property Insurance

Mortgage insurance takes care of the loan repayment, alleviating the financial strain on your family. It also reduces the borrower's risk in the event of unforeseen occurrences. As a result, it's always a good idea to get mortgage insurance to protect your financial interests.

Interest Rates and Other Charges

The loan amount and the repayment tenure determine the loan against property interest rate. Because a loan against property is a secured finance product, it is feasible to negotiate a lower interest rate based on a variety of circumstances. 

If you take out a loan for a longer period of time, the interest rate will drop even more. The majority of banks have interest rates that range from 9 percent to 12 percent. To compute approximate values in advance, one can count on loan against property EMI calculator. 

In addition to interest rates, you have to pay some nominal charges. The below-depicted table provides a better understanding of the applicable charges: 

Processing Charges	Around 1 percent of the loan amount
Prepayment Charges	Prepayment charges may vary from one bank to another. Usually, banks charge 2.5 percent of the outstanding amount as prepayment charges.
Late Payment Charges	1 to 2 percent of the due monthly instalment
Bounce cheque Charges	May vary from INR 250 to INR 550

Documents Required for Loan Against Property

Following are the documents required for a loan against property:

• Bank account statement (last three months)
• PAN card and Aadhaar card
• Residence and identity proof
• Salary Proof (for salaried applicants)
• Scanned copy of property documents
• Income tax returns (last two years)
• Form 16