LAP (Loan Against Property)

Loan against Property is also known as a mortgage loan which can be taken to fund children’s education, meet wedding expense or it can also be taken as business loan to grow your business. It is a secured loan as here collateral is involved. For any legitimate purpose you can proceed with loan against property for the claim.

Loan Against Property is defined as the secured loan where a mortgage is required and so the collateral is put against the loan. This means that, if you need this loan you require to mortgage your property against this loan with the bank. In this kind of loan, you can mortgage any of the property either residential or commercial. Hence, if you require a higher loan amount you must mortgage a costlier property if you an option.

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. 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.

Purpose of Loan Against Property Fund:

Customers need a loan for various reasons. You can get a loan against property for any of the below mentioned reasons:

  • For funding and expanding your business potential.
  • To purchase new property/land by mortgaging existing property
  • For marriage
  • To fund emergency medical treatments
  • To fund higher studies
  • To fund a vacation
  • For home renovation or expansion

Features of Loan Against Property:

  • A borrower has to mortgage their residential or commercial property while opting for a loan against property.
  • You can get a loan against property by keeping residential as well as commercial properties as mortgage.
  • The interest rate on a loan against property is decided considering various aspects of the applicant’s profile like their monthly salary, income details of self employed individuals or businessmen, amount taken as loan etc. As this is a type of secured loan, banks and NBFC’s offer lower rate of interest for a loan against property.
  • This is a long tenure loan as the repayment period can go up to a period of 15 years. Banks and NBFCs offer higher loan amount for longer tenure with exciting interest rates as compared to other loan plans.
  • The borrower is also supposed to pay all the hidden and extra charges such as processing fees and administrative fees. The borrower also has to pay the Bank/NBFC for property valuation and its processing fees. Many banks ask to pay 1% of the loan against property amount sanctioned.
  • The process of obtaining a loan against property is very quick and hassle free. Some banks approve the loan against property as quick as within three days.
  • Loan against property proves to be the best way for debt consolidation. That means you can pay off multiple debts by bringing them under a singular debt.
  • You can use your mortgaged property while repaying the LAP unlike gold where the gold ornaments remain with the banks or NBFCs and you don’t get them back until the loan is repaid in full.
  • If the property is owned by partners or directors of a company, then a loan against property can be taken in the name of that firm.
  • Borrower can avail loans from 5 lakh onwards against property, if they apply for LAPs. The minimum amount Rs. 10-15 lakh.

EligibIlity Criteria:

Your eligibility is determined after looking at the following

  • The current market value of your property and its current status
  • Your current Income
  • The nature and continuity of your employment
  • Your current obligations i.e. the other installments (EMIs) you are currently paying, the number of credit cards and credit limits you have or use
  • Your past credit history
  • The purpose of availing such loans is also discussed with the lender and may have a bearing on the loan sanction

The eligibly criteria for loan against property also changes based on applicant’s profession. The details of the same are given below:

Salaried Applicant

  • You must be a permanent employee with either a company or the government.
  • You should also be an employee with government or existing company for a minimum period of 3 months.
  • A salaried applicant must be over 24 years at least in order to avail a loan against property.
  • You should currently be employed with your existing organization.
  • You should maintain a good CIBIL score before applying for this loan.

Professional Applicant/ Self-Employed Applicant :

This category is further divided into two:

Self-Employed Professional :  These can be Architects, Doctors, Chartered accountants and many more.

Self-Employed Non-Professional : They can be Commission agents, Traders, Contractors and many more.

  • In order to get a Loan against property transfer without a top up for professional applicants, they must be at least 25 years old and this can be extended to a maximum of 65 years.
  • You must be involved in the existing business for few years (this number is defined by bank and will not necessarily be the same).
  • You must also be a regular in filing income tax returns regularly.

Documentation Required:

The list of documents for availing loan against property changes whether you’re a salaried applicant or a self-employed professional/ businessman. The Loan Against Property process can be made easier if you know exactly what documents you need to submit with your application.The list of required documents differs from bank to bank. But a generic list of required documents is given below: No income proof needed for approval.

Documents Required for Salaried Applicant:

  • You will need to furnish a fully filled and signed application form for a loan against property.
  • The banks will mention the number of Passport-sized photographs.
  • Furnish Identity proof in the form of – Aadhar card, Pan card ,Passport, Driving License, Voter ID card, employee identity card (in case of government employees).
  • Please keep a cheque ready which will cover administrative costs/processing fees that will be incurred by the bank in processing this loan application.
  • Keep these Address Proofs in handy – Rent Agreements, Bank statements, Ration card, Passport, Driving License, Water/Telephone/credit card bill/ Electricity or Property tax.
  • You will also need to arrange for the Age Proofs via – Birth certificate, Secondary school leaving certificate (class 10), Passport, pension payment order or receipt of LIC policy.
  • Apart from all this, please arrange for Salary slips of the past 3 months from loan application date.
  • Please attaché the Form-16 which will be issued to you by your current employer.
  • Get copies of your Bank statements since the past 6 months right from application date towards the loan.
  • Please get a copy of all existing loans and their details
  • You will have to furnished property papers with CC or OC

Documents Required for Self-Employed Business persons:

  • You will need to submit a neatly signed application form to get a loan against property.
  • The number of Passport-size photographs will be mentioned by the bank as per their form requirements.
  • Kindly arrange for the Identity and signature proof via - Aadhar card, Pan card, Driving License, Voter ID card, Passport etc.
  • Please arrange for the Address Proof in the form of- Rent Agreements, Voter ID card, Bank statements, Ration card, Credit card/ electricity/telephone/water/ bill or Property tax.
  • You can arrange for these documents to show Age Proof - Pension payment order or receipt of LIC policy, Secondary school leaving certificate (class 10), birth certificate, Proof of educational qualification which includes certificates, degrees, diplomas, and other academic credentials.
  • For those with a Business, they can show proof by furnishing the registration of business.
  • Arrange for Copies of Income tax returns or Assessment Orders since the last 3 years.
  • Also arrange for copies of challans which will prove that you have paid the Advance Income Tax.
  • In case you have previous loan history, kindly arrange for copies of all those existing loans and the details.
  • Furnish copies of Bank statements since the past 6 months.
  • Finally, arrange for OC and CC of Property papers.

What kind of processing fee do you need to pay for Loan Against Property?

A nominal fees and charges are to be paid to the Bank depending upon their term and conditions.

How much time does the bank take to disburse the loan?

The processing of the loans usually takes 7 to 10 working days once all the documents are submitted. It also depends upon your profile and documentation.

How is interest charged on Loan Against Property?

Some financial institutions make LAP available only under the floating rate. Fixed rate loans are off limits. Borrowers need to enquire before finalising a LAP from lending institutions.
It is normally available for residential properties only, but can be available for commercial property also.

Does the property have to be insured?

Yes the property has to be insured against fire, flood, earthquakes and other appropriate hazards during the tenor of the loan.

How can I repay my loan?

The repayment of loan is done through Equated Monthly Instalments. It can be paid through Post Dated Cheques (PDC) or Electronic Clearance System (ECS).

Can I pre-pay my loan?

The loan against property can be pre-paid along with the pre-payment charges. Usually the bank charges 2% of the principal pre-paid.

Why should I opt for Loan Against Property instead of a Top-up Loan?

A Loan Against Property (LAP) has many advantages over a Top-up Loan. They include:

• A Higher Loan Amount: Typically, an LAP may offer a higher loan amount than a Top-up Loan.

• Avail of Different Property: While an LAP can be availed of against a different residential or   commercial property than the one for which the loan was originally taken, a Top-up Loan may   only be taken against the property already in question. This flexibility allows you to both avail of a higher loan amount and spread your liability.

• Longer tenure: An LAP can be availed for a long term than a Top-up Loan.

What are the minimum and maximum amount I can get from Loan Against Property?

You can get a Loan Against Property from Rs. 2 lakhs to Rs. 500 lakhs. Some of the factors that banks consider when deciding a loan amount are:

• The property’s registration
• The property’s market value
• Your requirement and eligibility
• Your income and repayment capacity

Can I get an overdraft against my property?

Yes! Some banks structure Loan Against Property either as a Term Loan with an EMI repayment option or as a Drop-line Overdraft Facility.

Is it mandatory to have a co-applicant hen applying for LAP? If yes than who can be my co-applicant?

If someone is the co-owner of the property in question, it is necessary that he/she also be the co-applicant on the loan. You may also consider adding your spouse or parents or children as co-applicants to boost the eligibility on your loan.

Is there any fee to avail Loan Against Property?

Yes, banks charge a non-refundable processing fee for every LAP application. The processing charge to avail a Loan Against Property is up to 1% of the loan amount plus GST as applicable.

How will the Equated Monthly Instalments (EMI) be calculated?

The EMI consists of the principal amount and the interest on the principal amount. It is calculated by taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum. The EMI may be subject to change when interest rate changes or a part-payment of the Loan is made. Every month, part of the EMI is adjusted towards the interest payable and the balance is adjusted towards repayment of the principal.

How can I keep track for my LAP in terms of my statements and repayment schedules?

You may place request for Statement of Account or Repayment Schedule or Interest Certificate in either of the following ways:

• By calling the bank’s Call Centre at any of their toll free numbers.

• By using your registered email id the to write to the loans department of the respective bank.

• Walk-in person to the branch to get the physical statements.

What are the options available for the EMI repayments?

You may repay your LAP in any of the following three ways:

• Standing Instruction (SI): This mode can be used if you have an existing savings, salary, or current account with the lender. You may wish to open a savings account with the lender to use this option. Your EMI amount will be debited automatically at the end of the monthly cycle from the account you specify.

• Electronic Clearing Service (ECS): This mode can be used if you have a different Bank account other than the lender’s and would like your EMIs to be debited automatically at the end of the monthly cycle from this account.

• Post-Dated Cheques (PDCs): You can submit post-dated EMI cheques from a different Bank account for a specific period of time. A fresh set of PDCs will have to be submitted in a timely manner. Please note Post Dated Cheques are usually collected for non-ECS locations only.

We recommend that you opt for either the SI or ECS mode of payment as they are both faster and less prone to error than the use of PDCs.

Can I make part pre-payment towards my Personal Loan? Would there be any charges?

Yes, generally banks allow you to part-pay on the loan. This can be done at one of their nearest branch locations. Once the part-payments are done, you either have the option to reschedule the EMI for the new outstanding or keep the same EMI so that the overall tenure of the loan would come down and the loan gets repaid faster.

How do I foreclose my Personal Loan? Would there be any charges?

Before foreclosure is processed, all outstanding dues must be cleared. So first check for and clear any remaining amount that may be payable towards your Personal Loan by requesting a foreclosure statement from your lender. Once all outstanding dues have been cleared, submit a foreclosure request at the Loan Centre, for processing. Most of the banks/lenders levy no charge for pre-closure of a Personal Loan account.

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