What is Loan Against Property?
Loan against property (LAP), are basically loans provided by banks against the security of one’s own property. LAP is designed to meet the financial needs of someone who already owns a house or multiple properties so as to get the best out of their assets. Its important to remember that the property which you are putting up for your loan should be free any encumbrance (i.e. it is not given as security for any purpose or any other loan).
Banks provide LAP for both Salaried as well as Self-Employed individuals. The rates and loan amounts differ based on your property and your annual income.
Banks will always want to consider all risks, which is why while you are applying for your loan against property, there are certain factors the bank considers with respect to your property to mitigate its risks in giving out the loan. These factors determine your rate of interest, and loan amount. You can get a LAP of up to 80% of the registered value of your property depending on the Bank’s policy and the property type and valuation. The value of the property would be determined through a valuation conducted by the Loan Provider.
Individuals apply for LAP for a variety of reasons. Some of the common ones are your childs wedding, loans for new business ventures, second homes, vacations, medical treatment just to name a few.
Who can Apply?
Loan Against Property Details
You can apply individually or jointly for a Loan Against Property. All owners of the property will have to be co-applicants.
Salaried/ Self Employed
Adding Co-Applicant help in
maximizing the loan amount
Adding Women Co-Owner help in
Getting Better interest rate.
All co-applicant need not be co-owners.
Generaly co-applicant are close family member
For what purpose you can take loan against propety?
It can be used for any purpose other than speculative. You can use it to:
1. Fund your child’s education abroad
2. For funding any medical emergency
3. Wedding of your child
4. Funding the dream vacation
5. Business expansion
What are the various benefits of LAP ?
Lower interest rate: – As the loan is taken keeping the property as collateral, the rate of interest is generally lower when compared to personal loan. Loan against property interest rates generally ranges between 7.5% - 14% while in case of personal loan the interest rate ranges is 10% - 20%.
Lower to no prepayment charges: – You can close your loan against property by making prepayments towards your loan. Lenders generally don’t charge prepayment charges in case of loan against property.
Easy to get: – As these are secured loans, banks are more than willing to provide these loans. Therefore, you won’t find it very difficult to get the property loan.
Longer tenure: – These loans are generally available for longer tenure going up to 15 years while the tenure in case of personal loan is generally up to 5 years.
Lower EMI: – There is an inverse relationship between tenure and EMI. Longer the tenure lower will be the EMI and vice versa. As these are available for longer tenure, these become suitable for people who can’t afford paying higher EMIs. However, it is always advisable that a person should take loan for the shortest tenure as the interest burden will be lower in case of short tenure loan.
Loan Against Property Process
There are several steps in the Loan Against Property process. Here are the steps in brief :
✔ Application form & Document Submission
✔ Cibil report check
✔ Residence Verification
✔ Office Verification
✔ Eligibility calculation
✔ Technical & Valuation
✔ Personal Discussion
✔ Credit decision
✔ Offer Letter
✔ Submission of Property documents & legal check
✔ Signing of agreements and submitting post-dated cheque
When applying for Loan Against property LAP, a few points should be kept in mind.
The tenure of the loan is the first point. Since LAPs are secured loans, lenders may typically offer a longer repayment tenure, which could be up to 20 years, based on the applicant’s age, income and other eligibility criteria
The next point is the loan amount. Since loan providers have the security of a physical asset, a bigger loan amount can be offered, depending on the property value. Before this, however, the lender will conduct due diligence and evaluate the property’s value. Besides this, the applicant’s age, income, past payment history and credit rating score will be taken into account before the loan is disbursed
The third thing that matters is the rate of interest. As mentioned earlier, LAP interest rates are lower than those of unsecured loans. The more secure the loan, the lower the interest rates and vice versa. Where the risk of monetary loss is low, lenders can afford to offer lower interest rates.
The fourth concerns the time taken in processing the loan. Unlike personal loans, which can be processed within days, the LAP takes time because lenders need to carry out proper scrutiny of the property and its documents. An evaluation of the property’s worth is also done in determining its current market value. This due diligence ends up extending the total time for processing the loan.
The fifth point is to look for a lender who can provide customized eligibility programs in order to offer the maximum loan amount. Such a lender should also be in a position to offer quality services after loan disbursal since the relationship could continue for up to 20 years. These services should include digital ones too, which can ensure convenience, speed and a seamless experience.
Insurance Cover for the Loan Amount
Finally, the loan provider should also be able to offer extra protection via an insurance cover for the loan amount as a rider for the security of the borrower and his/her family to safeguard against any unforeseen or unfortunate event.
Since the loan amount that can be availed of against property is high, it is important that the borrower fulfils the required income criteria to repay the entire loan. It can be repaid over a period of 12 months up to 20 years, though the tenure varies from one lender to another.
Loan against property is provided against collateral; i.e., an immovable property such as a constructed residential/commercial property. Before deciding the eligibility and amount of loan, your lender will appraise your property. The amount will depend on the prevailing fair market value, not the past or potential future value. Housing finance companies usually provide up to 50-60 per cent of the market value of a property. Therefore, you should analyse the loan-to-value (LTV) ratio provided by your lender.
Ownership of property:
The lender will approve the loan only after it is convinced that your property has a clear and marketable title. Further, the co-owners need to be part of the loan and meet the criteria.
Any loan against property comes with a longer repayment tenure compared to a personal loan. The EMIs are spread over many years and the rate of interest is much lower. A longer tenure means lower EMIs, which reduces the monthly repayment burden.
The lender will evaluate your repaying capacity with the help of your income statements, repayment history, ongoing loans etc.
What is Dropline Overdraft?
Dropline Overdraft is a financial instrument that allows a borrower to overdraw cash from his/her current account up to an agreed limit, wherein the withdrawal limit reduces each month from the sanctioned limit. The interest rate is paid only on the withdrawn cash and not on the total borrowing limit. Money can be deposited anytime to reduce the outstanding balance. Interest rate is calculated on a daily basis and is charged at the end of each month.
Let’s understand Dropline Overdraft facility with an example:
If the initial tenure of the overdraft facility is 60 months and the original overdraft limit granted is Rs. 10 lakh, then after 1 month the operating limit shall automatically be reduced by 10,00,000/60 = Rs. 16,666. This means that the operating limit available at the end of the first month shall be (10,00,000 – 16,666) = Rs. 9,83,334. This calculation shall proceed for the second month as well and each month further, up till the last month of repayment tenure.charged at the end of each month.
Features of Dropline Overdraft
✔ Withdrawal limit reduces each month from initially sanctioned limit
✔ Comes as both secured and unsecured loan
✔ Do not require collateral to be submitted, in case of unsecured Dropline Overdraft facility
✔ Interest rate is charged on a monthly basis but calculated on daily basis
✔ Borrowing limit can go up to Rs. 15 crore, however it depends on bank’s sole discretion
✔ Borrowed amount is credited to only current accounts
✔ Can be used on a monthly, quarterly, half yearly or yearly basis
✔ Usually the Dropline limit is assigned for 1 – 15 years, it may vary from bank to bank
✔ One-time processing fee is charged
✔ Do not levy yearly renewal charge
✔ It is a mix of term loan and overdraft facility
✔ Opted mostly by manufacturers, retailers and traders
Loan Against Property Documents
To qualify for a Loan Against Property, most of the lending institutions in India require you to be:
Pvt Ltd / Ltd
|Application Form With Photograph Duly Signed||✔||✔||✔||✔|
|Clear Pancard Copy, (Applicant & Co-Applicant)||✔||✔||✔||✔|
|Latest Residence proof (Applicant & Co-Applicant)||✔||✔||✔||✔|
|Latest Office Proof (Applicant & Co-Applicant)||X||✔||✔||✔|
|Last 3 Months Salary-Slips||✔||X||X||X|
|Last 12 Months Bank Statements||✔||✔||✔||✔|
|Login Fees Cheque||✔||✔||✔||✔|
|Proof Of Business Existence ( Gumasta License , Sales Tax Certificate , GST Certificate etc )||X||✔||✔||✔|
|Form 16 of Last 3 Yrs||✔||X||X||X|
|Sanction Letter of all Existing Loans, if any||✔||✔||✔||✔|
|GST 3B Copy of Latest One Year||X||✔||✔||✔|
|Last 3 Years ITR with CA Certified / Audited Balance Sheet And Profit & Loss Account||X||✔||✔||✔|
|MOA / AOA||X||X||X||✔|
|Company Pancard Clear Copy||X||X||✔||✔|
|Shareholding Pattern On Letterhead||X||X||X||✔|
|Sundry Debtor & Creditor List Last 1year||X||✔||✔||✔|
|Property Papers ( Chain Of Agreement, OC, CC, BMC Approved Plan & Share Certificate Front and back copy,Society NOC) / Draft Agreement, Cost Sheets.||✔||✔||✔||✔|
How does the bank assess what amount of loan Against Property (LAP) can be funded ?
Frequently Asked Questions
The bank assesses the loan amount based on your income financials as well as the value of the property.
What type of property can I morgage for LAP ?
You can mortgage both residential and commercial property for availing LAP. However, the property should be free from any encumbrance (Except in Balance transfer case). You also can avail LAP against properties such as Schools, Nursing Homes upto 30 Beds, Warehouse etc.
Can you offer LAP as an Dropline Overdraf ?
Yes, you can avail LAP in Dropline Overdraft format
What percentage of the property value can I avail as an LAP ?
You can avail up to 70% of the property value as LAP. However, This percentage will depend on the property type and other checks.
What are the purposes for which I can avail an LAP?
You can avail an LAP for any business or personal use like:
✔ Business expansion
✔ Long-term working capital
✔ Debt consolidation to lower the Cash outflows
✔ Purchase of equipment
✔ Education/Marriage of children
Can I avail LAP against rented permises ?
Yes, you can avail. Loan to value ratio may vary depending upon the type of property
Difference between Home Loan & Loan Against Property ?
Home Loan is availed to buy property whereas the Loan against property is taken against already owned property. In both the scenario client needs to Mortgage the underlined property with bank.
Can I transfer my Loan against property (LAP) with other Bank for enhanced amount or tenure ?
Yes, it is possible to transfer your loan to other banker for enhanced amount or both.
Can I take part disbursement under LAP as per my need ?
Yes, it is possible to take the disbursement in parts.
Can I take loan against my warehouse property owned by me ?
Yes, Now it is possible to take loan against warehouse property under LAP as well as LRD.
Can I apply for the loan for my business against my friend’s residential property?
No, Third party property canot be offered to take LAP.
Can i apply for the loan for my business against my friend’s residential property?
No, Third party property canot be offered to take LAP.
Is it mandatory to take all the property owners as co-applicant in the loan?
Yes, All the property owners should be party/co-applicant to the loan.
Is it allowed to sell off the property during the tenure of the loan?
Yes, it is very much possible provided either buyer of the property take over the loan liability or customer make the payment of the balance amount.