Financial setbacks often catch us off guard and disrupt our plans. In such situations, we may find ourselves in need of immediate funds in the absence of a ready reserve. While borrowing from relatives or friends is only sometimes ideal, a recommended option worth considering is a loan against property.
Unlike personal loans with high-interest rates, a loan against property interest rates offers a viable alternative. Also referred to as a mortgage loan, LAP is a secured loan granted based on the borrower’s legally owned property used as collateral. While the interest rates on these loans are generally more affordable than personal loans.
If you are considering a loan against property, Let’s see some important points to remember.
Loan Against Property Interest Rates
The loan against property interest rates typically falls between 9% to 15% per annum, varying according to the specific lender. The loan tenure for a LAP can span from 7 to 15 years, giving borrowers flexibility in choosing a suitable repayment period. When accessing the funds, borrowers can receive the loan amount as a lump sum or utilise it through an overdraft facility.
Financial institutions often provide online loans against property eligibility calculators, enabling borrowers to calculate their exact Equated Monthly Instalment (EMI) amount based on their chosen repayment schedule. This home loan eligibility calculator assists borrowers in accurately assessing the financial implications of their loan and planning their repayment strategy accordingly.
Loan Against Property Eligibility Calculation
It is crucial to compare different lending institutions based on the loan-to-value (LTV) ratio they offer to ensure a favourable loan against property (LAP) deal. Private sector banks typically provide loans of up to 75% of the property’s value, while public banks offer up to 65%. The variation in LTV can be attributed to differences in how financial institutions evaluate properties and their internal lending policies, which impact the offered LTV.
Moreover, when pledging a commercial property as collateral, the LTV ratio is usually lower than for residential properties. Banks perceive that borrowers are more likely to prioritise the protection of their residential property, leading to a lower perceived risk for the bank.
LAP eligibility criteria may vary among banks, but all lenders consider common factors. These factors include the borrower’s income, existing debts, savings, repayment track record (including credit card payments and previous loans), and the market value of the mortgaged property. Additionally, the borrower’s employment status, age, financial stability, and credit score significantly determine the sanctioned loan amount. Lenders generally prefer borrowers with a steady income and expect the debt to be repaid during their employment period. As a result, the maximum maturity age for LAP is typically set at 65 years for salaried individuals (retirement age in India) and 60 years for self-employed individuals.
Loan Against Property Application Process
When applying for a loan against property, most banks and financial institutions typically require a standard set of essential documents. While these documents are generally the same, slight variations from one lender to another might exist.
The following table provides a comprehensive list of the essential documents needed for different types of applicants:
- Salaried Individuals Self-Employed Professionals/Businessmen
- Completed application form with attached photograph
- Valid photo identity
- Proof of current residence
- Latest salary slips (minimum of 3)
- Form 16
- For professionals: Last 3 years’ income tax returns (personal and business), Last 3 years’ balance sheets and profit and loss statements, proof of business existence, and certificates of educational qualifications.
- For businessman: The business profile, Last 3 years’ income tax returns (personal and business), Last 3 years’ balance sheets, and profit and loss statements.
- Bank statements from the last six months
- A cheque for the processing fee
A loan against property can be a valuable financial solution when needing immediate funds. Understanding the interest rates and eligibility calculations is crucial to make an informed decision. Borrowers have the flexibility to choose a suitable loan tenure. Utilising an online home loan eligibility calculator helps borrowers assess their EMIs accurately.
By understanding these aspects and conducting thorough research, borrowers can unlock the value of their property and make informed decisions regarding loans against property.