Things to Remember Before Taking a Loan Against Property
A loan against property (LAP) is a secured advance that housing finance institutions provide against commercial and residential properties. Individuals can avail of these multiple usage funds by mortgaging properties they own. Generally, a LAP comes at a lower interest rate than personal or business loans and gets sanctioned within a short time of applying. The borrowed loan amount depends on the mortgaged property’s market value. In LAP, an applicant can avail of up to 70% of the property value.
Nonetheless, before applying for this advance, there are several factors that individuals should be mindful of to optimise the borrowing experience.
6 Points to keep in mind before applying for a loan against property
The value of the mortgaged property determines the principal amount of such loans. The maximum borrowing amount will never be more than the LTV applicable. In most cases, only 60% to 70% of the property’s total value is sanctioned. However, the principal amount can also vary according to the borrower’s employment type.
Rate of interest
The interest rate on LAP is set by the lending institution and depends on the borrower’s income, principal loan amount, loan tenor, credit history and many other factors. Once you know the rate of interest applicable, you can use the loan against property EMI calculator to compute the exact monthly instalment amount payable against the loan.
Loan against property eligibility criteria differs from lender to lender. The eligibility criteria set by lenders usually pertain to the applicant’s age, employment status, income, credit history, nationality, etc. Before applying for the loan, applicants must ensure that they satisfy the criteria and eliminate the chances of rejection.
Generally, the tenor in LAP extends for up to 18 or 20 years, depending on your employment profile. A longer tenor helps minimise the risk of defaults as the EMIs are lower. But again, a long tenor also increases your total interest outgo. Therefore, it is recommended applicants use the loan against property interest rate calculator to calculate the monthly instalments beforehand to choose an appropriate tenor.
Other charges on loan against property
Like other credits, a loan against property also comes with some charges depending on the lending institution in addition to the interest rate. These include –
- Processing fees
- Stamp duty charges
- Penalty charges
- EMI bounce charges
- Statement charges
- Mortgaging fees
It is advisable to compare different lenders and consider these extra charges before applying.
Individuals looking to apply for a loan against property without income proof will need to submit the following documents to be deemed eligible –
- Application form
- Identity proof
- Address proof
- Last 6 months bank statement
- Processing fee cheque.
While it is important to present the income proof, if any applicant does not have one, he/she can add a co-applicant with a regular income and valid credit history. Adding a salaried co-applicant will improve a borrowers’ chance of getting his/her application sanctioned. Besides, choosing a lower loan to value (LTV) will further increase the chances of getting the loan approved.
Loan against property offers repayment flexibility, a higher loan amount, longer tenor to repay the loan and several other benefits to borrowers. Such loans do not have end-use restrictions and can also be utilised to meet variegated financial requirements such as funding medical emergencies, property renovation purposes, etc.
Several NBFCs also extend pre-approved offers on loan against property to simplify the application process. Applicants can avail of these offers on various financial products, including home loan, loans against property, etc. To check your pre-approved offer, provide your name and mobile number.
Apply for a loan against property by taking note of the above-mentioned factors to optimise your benefits effectively.