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Loan Against Property

An Overview

Mortgaging existing property is a great way to get a loan at low interest rates to meet the current financial needs. Loan Against Property (LAP) can unlock the financial potential in your property. A loan against property (LAP) or Mortgage loan as commonly termed is exactly what the name implies — a loan given or disbursed against the mortgage of existing owned property. Any existing property can help you to avail a loan at interest rates lower than other consumer loans, Personal Loans or Business Loans.

One can avail these mortgage loans for commercial property or residential property collaterals. The property is mortgaged and a fixed percentage of the prevailing market value of the property (normally between 60-70% of the value of the property) is given to the borrower as a loan. Though such a property is mortgaged with the lender, you are still allowed to continue using it for residential or commercial purposes.

Loans against property area highly preferred form of loans in India, and have much more easily available than ever with the surge in banks and NBFCs providing these loans. Along with being cost-effective, these loans are reasonably convenient to avail and repay due to the relatively low interest rates and extended loan tenors.

Loan Against Property Characteristics.

  • Loan against property Loan amount ranges from Rs.5 lakhs to Rs. 10 Crores.
  • Loan against property can be availed against Residential Properties, Commercial properties, Industrial Properties, Open Plots etc.
  • Loan against property can also be availed against non standard collaterals like School, Hospitals, Hotels, Godowns etc.
  • Loan against property can be used for business expansion, debt consolidation, medical emergencies, education, Marriage Expenses etc.
  • Loan against property can be EMI based loan or a drop line overdraft facility.
  • Flexible loan tenure & prepayment options are easy ways of repayment. These are long-term loans and repayment periods can be anything from 10 years to 15 years.
  • Attractive interest rates are offered, starting from as low as 9.25%.
  • There is a facility of balance transfer of Loan against property where you can transfer your existing loan to any other Bank/NBFC and get additional refinance (Termed as Top Up Loans as well) on better terms and conditions.

Key Features

  • Eligible Customers
    Customer’s engaged in trade, commerce and business, professionals, self-employed, individuals with high net worth, salaried people, Proprietary firms, Partnership firms, Companies (Pvt. /Public Ltd.).
  • Loan on any kind of Property
    Pre owned Residential, Commercial, Industrial Property; alternate properties (schools, hotels, hospitals, residential plots, godown Property and industrial property) are eligible for loans.
  • Repayment / Flexible Tenure
    You can repay your loan over a period of 12 months to 180 months.
  • Security
    Original Title deeds are deposited by way of Equitable Mortgage where.
  • Insurance
    Customer can avail Property and Personal insurance cover as per the guidelines and arrangements with the insurer/underwriter to minimize the risk of future repayment of loan. This is optional.
  • Processing Fee
    A Processing Fee equivalent to 1.0 % – 1.5% of the loan amount sanctioned (taxes as applicable) inclusive of a non-refundable login fee of Rs. 3500-5000/-(taxes as applicable).
  • Loan Amount
    You can avail Loans ranging from Rs. 5 Lakhs to Rs. 10 Crores.
  • Easy Repayment
    You can repay your loan easily by way of EMI through ECS/NACH or even post-dated cheque’s as decided during the sanctioning process by Banks/FI’s.
  • Quick and Easy Processing
    With quick application and minimal paperwork, a representative of can get your loan processed in no time.
  • Floating and Fixed Interest Rates
    Loans against Property come with attractive interest rates with an option of floating or fixed rates.
  • Penalty for early closure
    Pre-payment charges if any applicant is Non Individual and the pre closure amount is above 25% of the principle outstanding during a financial year, A pre payment penalty of 2% to 4% (depending upon Bank/NBFC) will be charged otherwise no penalty will be charged in case of all loans. In case of take-over/transfer of your loan from current financial institution to any other bank/housing finance company/financial institution, a prepayment penalty on the principal outstanding will be recovered according to the terms & conditions mentioned in the accepted sanctioned letter.

Loan Against Property Eligibility Criteria

Loan against property eligibility includes many criteria’s that the loan applicant needs to satisfy in order to be eligible for a LAP. Every lender has different loan eligibility criteria but there are certain common factors which are checked to access the loan applicant’s credibility such as age, income, work experience and credit history and the type of property he is mortgaging along with the employment type.

Irrespective of the applicant’s occupation or profession, there is a need to check eligibility before approaching banks and this can be done through with a help of few clicks.

The criteria with respect to eligibility for a LAP tend to vary from one lender to another. Following are some key requirements to be taken into consideration:

  • Employment Stability
    It’s a crucial aspect for home loan consideration. Unless the applicant is salaried and employed for at least 2 years in the current profession or if the applicant is self-employed with minimum 3 years of total business vintage, LAP will not be processed.
  • Age Criteria
    The younger the applicant is there is more probability of getting loan. The minimum age of the applicant should be 21 years. Most banks offer LAP for salaried employees only if they are between the age group of up to 60 years. However for self-employed this will change to up to 65 years.
  • Credit Rating
    Apart from the applicant’s company’s performance, individual credit rating has a lot of importance. Good credit rating will increases the chance of getting the loan with more flexibility on loan amount, EMI, tenure and interest rates. Default payment records, fraudulent tracks, and outstanding loan, will reflect negatively on the applicant, this could lead to bank’s rejecting the loan application or will charge high rate of interest.
  • Income Levels
    Your current income level plays a key role in determining not only your eligibility but also the maximum limit of the LAP offered to you. A high net monthly income is indicative of an ability to pay a higher EMI amount and better chances of timely loan repayment. For this factor, not just present income status is considered, the past records of financial stability holds lot of value in deciding the eligibility for Loan against property. It is a key to success in all fields if you have good financial records, this can decide the interest rate percentage, loan amount and tenure when applying for loan.
  • Property market value
    Bank/NBFC get the property valued independently and offers a loan amount upto a percentage of the current market value , this varies from bank to bank but usually falls in between 65% to 75% of the current market price. This is also done to check if the property in question meets all the by-laws of construction laid by the government authorities.
  • Legal Search/Title Search
    The lenders do a complete legal search of the property which the borrower is intending to mortgage, this is done in order to confirm whether the property in question is free from all encumbrance, and to check the authenticity of the ownership of the property.

Documents Required

Applying for Loan against property online or offline requires the borrower to submit a list of documents as demanded by the loan provider. Documents required for LAP vary as per the employment type of the individual, i.e. salaried or self-employed, The following, however, are commonly requested for from all the applicants:

  • A duly filled bank loan application form
  • 2 recent passport size photographs.
  • Proof of identity (Copy of Aadhar/Passport/Voter ID/PAN Card/).
  • Proof of address (Copy of latest Electricity Bill/Telephone Bill/Property Tax Receipt/Voter ID/Passport).
  • Last 12 months’ Pass Book/Bank Account Statement for all saving and current accounts
  • Identification of signatures from present bankers.

Documents Requested from Co-applicants

  • Identity and address proof.
  • 2 passport sized photos.
  • Proof of business.
  • Statement of Personal assets and liabilities.
  • Identification of signatures from his/her present bankers or a signature proof such as PAN card.
  • A cheque covering the administrative costs/processing incurred by the bank in processing the application.

Additional Documents Requested from Salaried Applicants

  • Letter of employment
  • Salary certificate from the employer (original).
  • Copy of ITR along with computation of Income or Form 16 for last 2 years.
  • Last 6 month salary slips

Additional Documents Requested from Self-Employed/Professionals/ Business entities

  • Copy of ITR/Assessment Orders of 3 years.
  • Computation of Income/ Profit and loss account/ Balance Sheets of last 3 years.
  • Audit reports for last 3 years if any.
  • Business registration proof in case of self employed individuals.
  • Statement of Personal assets and liabilities.
  • GST returns for last 4 quarters.
  • Partnership Deeds in case of partnership firms
  • Certificate of Incorporations/Article of associations/Memorandum of associations in case of private ltd company.

Documents related to property

  • Copy of complete chain of property papers right from the origination.
  • Copy of allotment and possession letters
  • Copy of house tax , along with other government departmental taxes.
  • Copy of the sanction map of the property

Fees and Charges associated with Home loans

  1. Processing Fees
    As the name suggests this fee is collected towards processing of your loan application. This fee is non-refundable and is collected upfront at the time of sanctioning of the loan. Take this into account before choosing the bank you want to take the loan from. It may vary for every institution but usually may be 1% to 1.5% of the loan amount.
  2. Pre-payment charges
    Paying off the loan either entirely or in parts before the end of the loan tenure is considered as pre-payment of the loan. While there are no pre-payment charges applicable on loans with a floating rate of interest, as per Reserve Bank of India norms, lenders do charge some penalty on loans with fixed interest rates if the borrower wants to prepay the loan. The penalty charges vary from bank to bank but hover around 2% to 5% on the outstanding balance at that time.
  3. Legal and technical verification fee
    Once you submit your property documents with the bank, the bank has to undertake a process to get the documents verified legally. Banks have a team of legal and technical experts, or outsourced agents, who verify the submitted documents for each loan applicant and initiate technical inspection for the property. For some banks, the processing fee is inclusive of these charges while some others charge this separately. In case you are seeking a property that is from a project approved by the same bank, then the legal charges are usually waived off.
  4. Loan conversion fee/switching fee
    If you have taken up a home loan with a floating rate of interest but now want to switch to a fixed interest rate or vice versa, the bank will charge a loan-switching fee to facilitate such a request. While charges vary from bank to bank, most banks on an average charge 0.5% to 1% of the outstanding loan amount to facilitate such a switching as requested. In recent years, such switching fees are more prevalent for fixed-to-floating than the other way around.
  5. Late payment charges
    If you are a home loan borrower, make sure you follow your EMI due dates diligently. Banks and NBFCs charge a late payment charge for every delayed EMI. On an average, late payment charges can vary from Rs. 200 to Rs. 500 plus 2 per cent additional interest as penalty.

Check List before applying a Loan Against Property

Taking a loan allows you to borrow money for almost all your requirements and to have a better experience, there are certain points you must know before availing a personal loan.

  • Loan Amount & Tenure
    Depending on your income and repayment capacity, decide upon the loan amount you need and for how much duration.
  • Eligibility
    Checkout eligibility criteria of different banks and identify which one suits your needs the most.
  • Processing Time
    For your immediate monetary requirements, knowing about the processing time of loan can be of great help.
  • Interest Rate & other charges
    Your complete loan experience depends upon the interest rate, processing charges, prepayment charges and other such charges. Know them before hand to take a well-informed decision.
  • Repayment History
    Your financial health will define your credit worthiness. Make sure you have all the necessary documents to prove your strong credit history and income.
  • Documentation
    Note down the list of documents required to apply for a loan.
  • Foreclosure
    Do not ignore independent foreclosure policy and charges of different banks.Please note the same is negotiable.
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