Loan Against Property (LAP) is a type of secured loan provided against the security of a property legally owned by the applicant. This property can be either residential or commercial, and its market value determines the potential loan amount that will be granted to the borrower. From a cost perspective, these loans can be a better option as compared to a personal loan due to the comparatively lower rate of interest charged by the lenders.
Along with being cost-effective, these loans are reasonably convenient to avail and repay due to the relatively low interest rates. Bridge the gap between your dreams and financial need by applying for Loan Against Property with FinMarket.in.
Based on the type of property pledged, Loans against Property can be classified as:
Loan against property is a multi-purpose loan which can be used for a variety of financial needs such as medical expenses, travel, wedding expenses, higher education for children, business expansion, home improvement, and more. Typically lenders are willing to offer 50%- 60% of the value of the property as loan. However, depending on the type of property, the funding ratio may vary:
For residential, self-occupied property, the funding percentage is usually 65%. If the residential property is rented, then 60% of the property value can be availed. Similarly, for commercial, self-occupied property, 55% is the funding ratio and for commercial properties that are let out for rent, lenders will typically advance 50%. Funding against residential plots is normally 60% of value, whereas for commercial plots the funding is approximately 50% of value. Remember, LAP is not granted for purposes such as gambling, speculative business investments, stock market investment, or other similar purposes.
Any registered property with the proper sanctions from the appropriate town planning authority is considered suitable for LAP. General Power of Attorney (GPA) holders of a property cannot apply for LAP, because a power of attorney is not the same as legal ownership. Therefore, lenders do not give loans to GPA holders. Similarly, most lenders do not grant LAP for agricultural lands because these lands are solely meant for agricultural purposes. Here’s a list of properties for which LAP is usually granted:
The immense popularity of Loans Against Property can be attributed to its multiple benefits:
When compared to a personal loan, LAP can be a better option for a number of reasons:
Documentation required for applicants
The primary requirement for LAP is that the applicant should be the legal owner of the property to be mortgaged. Besides this, there are other eligibility criteria which differ from one lender to another. However, below are some of the common requirements that have to be fulfilled to be eligible for LAP:
Loan against Property is a loan given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property's market value.
You can avail the loan against the following properties:
Once your application is submitted, approval normally takes between 10 and 30 days.
The value of the property would be determined through a valuation conducted by the Loan Provider.
The difference between a Home Loan and a Loan against Property is that a Home Loan is taken only for the purpose of buying a residential property whereas a Loan against Property can be taken for any purpose.
Yes the property has to be insured against fire, flood, earthquakes and other appropriate hazards during the tenor of the loan.
Yes, you may repay the loan anytime. Some banks charge prepayment penalties that are outlined in the loan agreements. We help you sort all of this out while choosing a loan.
Yes. NRIs can get Loan against Property from most leading lenders in India. Except for the requirement of some additional documents such as passport, visa, and work permit, the process of applying for LAP is the same for both NRI and Indian applicants.
Yes. You can apply for LAP jointly with your spouse, provided he/she is the co-owner of the property.
No, there are no tax benefits for Loan against Property. However, if the amount obtained from LAP is used for business expansion, the interest paid, documentation charges, and processing fees can be claimed as business expenses under Section 37(1) of the Income Tax Act. But, if the funds are being used for personal expenses such as a wedding, or a child’s education, no benefits can be claimed under the tax laws.
The loan amount granted for LAP would depend on the type and value of the property being pledged. However, in general most lenders provide LAP for amounts ranging from a few lakhs to 2 or 3 crores.
Some of the factors considered by lenders for sanctioning LAP are:
As with any other type of loan, most lenders provide an online EMI calculator on their website, which allows you to calculate the monthly payment applicable for Loan against Property. To manually calculate the EMI, apply the following mathematical formula:
EMI = [P x R (1+R) N]/ [(1+R) N-1]
Where P is the principal amount, or the total amount of loan availed, R is the rate of interest on the loan, and N is the tenure of the loan represented in months.
Yes. You can avail LAP even if you have other existing loans provided you meet all other eligibility criteria of income, age, employment, credit score etc.
The lender conducts a formal evaluation, wherein an appraiser approved by the lender, visits your property to assess it and determine its market value.
Since LAP is a multi-purpose loan, most lenders do not require you to specify the purpose of the loan up to a certain amount. However, if the amount borrowed is beyond a particular limit, you may be asked to sign a declaration that the funds are not being used for any speculative or illegal purposes.
In general most lenders charge a processing fee of 0.5-1% for Loan against Property. Besides this, there is usually a mortgage origination fee of ₹ 5000. In the event of a foreclosure, charges are applicable at 4%, and for prepayment 2%-2.5% is charged. Besides these, cheque bounce charges, or charges for late payment of EMI may be applicable, and these charges vary from one lender to another.
Yes, interest rates of LAP are lower than those on personal loans because LAP is a type of secured loan, which means lower risk to the lender.
Four important factors that determine the interest rate offered by the lender for Loan against Property are:
Not all applications for LAP get approved. Some common reasons for rejection include: