Loan Against property
Loan against property or LAP is a mortgage or secured loan availed after pledging a property as collateral. You can avail of Loan up to 100% of property value for maximum of 15 years. Rate of interest and tenure varies from bank to bank and lenders to lenders.
Documents Required Loan Against Property
|Document Type||Documents Acceptable|
Loan Against Property interest rate
Banks and financial institutions offer loans for almost anything. Loan Against Property and personal loan help people meet their requirements like business expension, marriage expenses, education of children, medical expenses, and so on. The Rate of Interest completly depends on Bank Repo rate.
Concept and Features of>Loan Against Property
A Loan Against Property is a “No Questions Asked” personal loan with security. It is similar to a personal loan in many respects but has its distinct flavour.
The key features of a Loan Against Property are as follows:
A Loan Against Property is a collateral-backed personal loan. Banks and other institutions offer this product against the security of either residential/commercial/industrial property and plots.
The purpose of the loan can be to meet personal expenses like medical needs, marriage expenses, education of family members, home repairs, and so on.
Business entities or self-employed individuals can avail this facility to meet urgent day-to-day expenses like working capital requirements. This loan is also available for acquiring a long-term capital asset for business expansion.
As it is a secured advance for the bank, the quantum of loan is higher than the personal loan. A personal loan is a clean unsecured loan, usually against your salary and other income.
Though the purpose of the personal loan and the Loan Against Property is same, the characterisation of both is different.
Compared to the personal loan, the Loan Against Property is a safer proposition for the bank. Hence, the banks offer relaxations by not insisting the borrowers to have a CIBIL score of 750 and above. Many banks provide loans against property to borrowers with CIBIL rating between 650 and 750 also.
The rates of interest charged by the lending institutions belong to the middle tier. They are not as low as the home loan interest, and not as high as the personal loan and credit card interest.
The process of sanctioning Loan Against Property is a transparent one. The eligibility criteria are crisp and defined clearly. Banks offer eligibility calculators on their websites to determine the Eligibility for Loan Against Property.
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Loan against Property (LAP) can be availed against the mortgage of a self-owned property for any personal or business purposes. The property acts as a collateral to support the finance provided by the lender. The margin for Loan against Property usually 100% of the value of the property (also known as LTV or Loan-to-Value).
- Easy to get: LAP is a secured loan making it easier for lenders to offer money to the borrower as it is backed by collateral.
- Longer tenure: Usually banks sanction a LAP between Rs. 3 Lakhs to Rs. 100 Crores. It is the only loan facility other than the Housing Loan that allows banks to stipulate repayment period of up to 20 years.
- Lower interest rate: In comparison to Personal Loans, a LAP loan has a lower rate of interest. The reason is the security offered to the banks.
- Lower EMI: When you have longer tenure and a lower interest rate, the EMIs are bound to be lower.
- Flexibility: Various banks have flexible loan products in this category, including term loans, overdraft facilities, reverse mortgage, etc.
- Types: LAP can have various types, such as loan against residential/commercial property, loan against rent receivables, reverse mortgage, and so on.
- Tax benefits: You get benefits tax benefits if you avail a loan against property for home renovation purposes. Usually, customers go for home renovation loans if they have to carry out repairs to the same property to be mortgaged to the bank. You might carry out repairs to your home but avail a mortgage loan by mortgaging another property. Under such circumstances, you have to prove that the end use of the loan is for carrying out renovations to the property you reside in.
Each lender has their own eligibility criteria for availing LAP. Below are some common criteria to be eligible for a mortgage loan:
- Age: Minimum 21 years and maximum 65 years.
- Profession: Both self-employed individuals and salaried persons with a regular source of income are eligible for a Loan Against Property.
- Joint applications: Co-applicants are permissible. Lenders can accept the income of the co-applicants for arriving at the eligibility.
- The applicant should have unencumbered property in their name. The property can be residential, commercial, or industrial.
- Agricultural land is not acceptable as security for the loan.
- Many banks stipulate that the property should either be vacant or self-occupied.
- Some of the banks do not consider a property that is let out on rent or lease to third parties.
- Some lending institutions sanction loan against vacant residential plots
- Margin: The margin requirement for Loan Against Property can be 10% to 50% of the market value of the property.
- Current obligations: The take-home pay norms come into effect. Usually, one should have a take-home pay of 50% after accounting for all the EMIs including the proposed one for the Loan against Property. Hence, it is imperative for the borrowers to declare their current obligations.
- Credit history: The lending banks are members of CIBIL (Credit Information Bureau (India) Limited). They can pull out the records from CIBIL to determine your credit score. Usually, a credit score in the range of 600 and above is acceptable.
- Upfront fees: Many banks follow the procedure of collecting upfront fees for processing the application. They adjust the fees with the processing fee in case they approve the loan. Remember, this is a non-refundable fee. It is usually in the range of Rs. 3,000 to Rs. 5,000.
- Processing fees: The regular processing fees are in the range of 0.5-1%.
- Valuation charges: Normally, these charges are included in the processing fees. But, some banks charge it as a separate entity. These charges are payable to the valuation engineer who determines the value of the property and submits the valuation report to the bank.
- Legal scrutiny charges: Similar to the valuation charges, some banks include these charges in the processing fees. At times, you have to incur these charges separately. It is payable to the advocate who conducts the legal search of the property and submits the Legal Scrutiny Report.
- Mortgage registration charges: Some states in India do not require the registration of the equitable mortgage. It is compulsory in states like Tamil Nadu. You have to incur these charges (0.5% of the loan amount subject to a maximum of Rs. 25,000 as stamp duty and Rs. 5,100 as equitable mortgage registration charges).
- Prepayment charges: Some banks charge prepayment charges to the tune of 2% to 5% of the outstanding loan It depends from bank to bank.
- Insurance: Insurance of the property to be mortgaged to the bank is compulsory. Also, some banks have tie-ups with insurance companies who market their products like loan insurance, health insurance, and personal accident coverage. These are optional charges.
|Bank Name||Interest Rate||Processing Fees|
|Punjab National Bank||8.70% – 10.30%||0.75% of loan amount (Maximum Rs. 1,00,000) + GST|
|Bank of India||8.85% – 9.35%||Up to 1% of loan amount (Maximum Rs. 50,000)|
|Bank of Baroda||8.20% – 13.85%||Up to 1% of loan amount (Minimum Rs. 8,500 & Maximum no limit)|
|Indian Overseas Bank||9.75% – 10.25%||Up to 0.75% of loan amount|
|State Bank of India||8.45% – 10%||Up to 1% of loan amount (Maximum Rs. 50,000) + service tax|
|Union Bank of India||8.40% – 10.65%||1% of loan amount (Minimum Rs. 5,000 & Maximum Rs. 1,00,000) + GST|
|IDBI Bank Limited||8.25% – 9.80%||0.50% to 1% of loan amount (Minimum Rs. 10,000)|
|Central Bank of India||9.40% – 9.90%||Up to 1% of loan amount|
|HDFC Bank Ltd||8.25% – 9.20%||Up to 1% of loan amount (Minimum Rs. 7,500) + taxes|
|Canara Bank||9.95% – 12%||0.50% of loan amount (Minimum Rs. 5,000)|
|UCO Bank||9.45% – 10.45%||Up to 0.50% of loan amount|
|Bank of Maharashtra||8.55% – 9.55%||1% of loan amount + GST|
|Jammu & Kashmir Bank Ltd.||9.20%||Up to 1% of loan amount + GST|
|Punjab & Sind Bank||9.35% – 9.95%||Up to 1% of loan amount (Minimum Rs. 2,000)|
|Citibank||7.26% – 8.91%||Up to 0.75% of loan amount|
|Axis Bank Ltd.||10.50% – 11.25%||1% or Rs 10,000 (whichever is higher)|
|Federal Bank Ltd.||10.10%||1% of loan amount (Minimum Rs. 3,000)|
|Kotak Mahindra Bank Ltd||9.50% – 11.70%||1% of loan amount + GST & statutory dues|
|Karnataka Bank Ltd.||10.82% – 11.97%||1% of loan amount (Minimum Rs. 7,500) + existing upfront fees|
|Karur Vysya Bank Ltd.||9% – 12%||0.50% of loan amount|
|ICICI Bank Ltd.||8.25% – 9.25%||1% of loan amount + applicable taxes|
|South Indian Bank Ltd.||10.30% – 11.80%||0.50% of loan amount|
|Tamilnad Mercantile Bank Ltd.||11.25%||0.50% to 1% of loan amount + applicable taxes|
|Piramal Housing Finance||Starting from 11.50%||Up to 4% of loan amount + applicable taxes|
|IDFC First||Up to 11.80%||Up to 3% of loan amount|
|Catholic Syrian Bank Ltd.||11.99% – 13.49%||0.50% of loan amount|
|Dhanlaxmi Bank Ltd.||10.60% – 13.95%||1.50 % of loan amount (Minimum Rs. 10,000) + service tax|
|YES Bank Ltd.||7.55% – 14.50%||Up to 2% of loan amount (Minimum Rs. 10,000) + GST|
- Visit the official website of the lender to fill in the online loan application form or fill it instantly through our website.
- On completion of this mortgage loan process, you will be able to choose the offer that suits your requirements. You should keep your application form and documents ready. We have a special team to assist you in this regard at no extra cost.
- The lender has the responsibility of verifying the KYC and income proof documents. The lender would like to inspect the property and have a discussion with the borrower to obtain first-hand information about the borrower’s employment, business, income, and investments.
- Banks have advocates on their panel to carry out a legal search for the last 30 years to ensure the property is free from any encumbrances and that the borrower has the clear title to it. It is a prerequisite for the equitable mortgage to be valid and binding on the borrower.
- The evaluation of the property is the next step following which the banks appraise the loan application for the eligibility amount.
- On the approval of the loan, the bank sends you the sanction letter that you have to go through and agree to the terms and conditions. MyMoneyMantra helps you in this regard.
- Finally, you have to execute the equitable mortgage and register it (if registration is compulsory – It is not so in some states).
- We help you with the disbursement process as well.
Types of loan against property can be classified based on the purpose for which you avail the loan.
- Business Expansion Loans: Business entities can avail this facility for acquiring new machinery, purchase of plant, meeting working capital requirements, and invest in new technology or business. The lending banks require collateral in the form of property, residential, commercial, or industrial. Depending on the nature of the property available as collateral, the lending banks calculate the loan eligibility. For commercial properties, the LTV is around 55- 65%. In the case of industrial properties, the LTV reduces to 40-55% whereas the LTV in the case of residential property is in the range of 65-70%.
- Working Capital Overdraft Facility: Banks sanction overdraft facilities against the property for meeting the day-to-day working capital requirements. Under such circumstances, the property is accepted as collateral. Lending banks estimate the amount of finance required based on the following figures:
- Property value and nature of the property
- Actual working capital requirement calculated as per the internal policies of the bank, usually the Projected Annual Turnover method.
- Personal Expenses: Individuals can also avail Loan against the Property for personal expenses such as medical expenses, educational expenses, marriages, travel, as well as for purchasing consumer durables.
- Home Renovation: Usually, people do not avail this loan for renovating homes as there are separate schemes available at comparatively lower LAP interest rates. However, there can be circumstances when the borrower might have to resort to avail a Loan against Property for home renovation.
- Lease Rental Discounting: Some banks offer loans against the future rent receivables, especially in metropolitan and urban areas. One should note that the property that fetches the rent should also be mortgaged in favour of the bank. Banks usually finance in the range of 75% to 90% of the future lease/rent receivables. The tenure of such loans is shorter and should end before the expiry of the lease or the rental