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All you need to know about loan against property

All you need to know about loan against property

There were a number of new trends observed in the loan against property market amidst the pandemic and its subsequent economic crises. 

  • A notable one among them is the most sought-after LAP amount – which remains in the range of around Rs.35 lakh-Rs.70 lakh as reported by Financial Express. 

Most of this demand reportedly generates in cities like Delhi, Hyderabad, Kolkata, Bengaluru, and Mumbai. However, there are several factors pertaining to a loan against property that require attention from prospective borrowers. Knowledge about these factors will not only allow borrowers to maximise their benefits, but also clear the obstacles in the application process.

Salient features of a LAP

Following is a list of beneficial features of a loan against property:

No end-use restriction

Probably the most notable feature that makes property loans stand out among all mortgage loans is their flexible usage. Most financial institutions sanction funds worth up to 70-80% of the property’s value on average. This also makes for an adequate loan amount to finance multiple personal and professional requirements. 

Collateral type

Individuals can mortgage residential as well as commercial properties, which can be buildings or bare plots of land. The property must legally belong to the applicant. Financial institutions will evaluate its value based on its location, usage, age, etc.

Interest rates

Both fixed and floating rates of interest are available against a LAP. Enter your chosen interest rate along with other necessary details in a loan against property interest rate calculator to determine how it affects your repayment. Fixed rates are generally set at 1%-2% higher than floating rates. 

Speedy disbursal

Financial institutions may sanction funds within as early as 72 hours. This makes LAP a great source of emergency funding.

Long repayment tenor

Leading housing finance companies offer loan tenors of up to 20 years. While a prolonged tenor can be a benefit for borrowers seeking smaller EMIs, it eventually results in a higher interest pay-out. Borrowers can use a loan against property EMI calculator to understand the difference.

The total interest payable against Rs.60 lakh taken at 11% for 18 years as a LAP will be around Rs.78 lakh with an EMI of Rs.63,903. When the tenor against the same loan is reduced by 4 years, the EMI rises to Rs.70,143. However, the total interest component reduces to approximately Rs.58 lakh, saving you a whopping Rs.20 lakh.

Several lending institutions also offer doorstep service for documentation, which is a boon, especially in the lockdown scenario.

Besides understanding the above features of a loan against property and how they can affect one’s finances, borrowers also need to keep in mind the eligibility requirements. 

Loan against property – Eligibility parameters

Potential borrowers must meet the following loan against property eligibility criteria for successful application.

  1. Applicant must be the legal owner of the mortgaged property.
  2. He/she must have an annual income complying with the concerned lending institution’s requirement.
  3. Preferable credit score is 750 and above.
  4. Individuals can be self-employed or salaried. In the latter case, applicants must be employed under a public/private company or MNC.
  5. Age requirement can range from 25 to 70 years depending on an applying individual’s employment type.

Note that besides loan approval, eligibility also decides the final loan against property amount sanctioned. The maximum borrowable LAP for salaried individuals is Rs.1 crore, while the same is Rs.3.5 crore for self-employed applicants.

Mandatory loan against property documents required

There can be several challenges and even disqualification when applying for a loan against property without income proof. Therefore, applicants must be acquainted with the standard documents required to substantiate their eligibility claims, given as follows.

  • All property-related documents
  • ID proof
  • Financial documents like ITR copies, bank statements, etc.
  • Proof of income like profit and loss statements or salary slips. 
  • Proof of residence

Besides abiding by the above requirements, make sure to check the additional benefits you can avail against this financial product. 

Look for a HFC that provides pre-approved offers against such financial products to facilitate faster loan disbursal. These offers are available against other such credits, including home loans. Check for such offers by entering your name and contact details before applying.

Also, learn about the various tax benefits available for a loan against property under Sections 37 (1) and Section 24 of the Income Tax Act. Know about the various conditions under which these deductions are applicable to optimise the borrowing experience.

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