A loan against property (LAP) is a secured loan that enables easy access to loan money through a real estate property. Lenders grant LAPs by securing the property rights and levying an interest rate on the proposed loan for an agreed time frame. There are no end-use restrictions for the amount availed of under LAP. A borrower is free to use the money for any personal purposes, such as expanding business, financing children’s education or meeting marriage expenses, starting a new venture, refurnishing a house, etc. LAP comes with benefits, such as a lower interest rate when compared to personal loans and other non-secured loans. LAP is paid off through EMIs over an interest rate for a specified period. Unlike home loans and personal loans, the processing time for LAP is much longer as the document and property verification takes time.
Loan Against Property Eligibility
The Loan against property eligibility criteria for availing of a loan under the LAP scheme is the same as that for any other type of loan. Any citizen of India above 21 years of age with a stable source of income is eligible for availing of a loan under LAP. The applicant must be the legal owner or co-owner of the real estate property they plan to mortgage and the property must be free from any legal dispute. Interest rates are often determined based on the legal rights of the property. In the case the property to be mortgaged has
more than one legal owner, the loan against property application must be made by all co-owners of the property.
Types of Property Eligible for LAP
Any property, physical and immovable (residential/ commercial) without any legal issue is eligible to be used as collateral to procure a loan under the LAP scheme. The types of property that are considered for LAP include self-occupied residential properties, rented residential properties, self-occupied commercial properties, rented commercial properties, firms, institutes, and others. Even under-construction properties can be considered for LAP mortgage, provided the builder is authorized and the construction is 90 per cent complete. An expert architect will verify the completion percentage of the under-constructed property and only then LAP will be sanctioned. Any property on disputed land, agricultural land, or an unauthorized construction property is not eligible for availing of LAP.
Interest rates on LAP and the availed loan amount mostly depend on the type of real estate property. Further, the condition, age, location, and resale value of the property also decide the interest rate that you will need to pay on the availed loan. A residential complex with a high resale value will be eligible for lower interest rates than a residential apartment with low resale value. The quality of the property is inspected by an expert sent by the lender for assessing the current market value of the property and only after this step does the lender decide the final loan amount to be sanctioned.
Loan Against Property Balance Transfer
Various lenders offer the facility of loan against property balance transfer for attracting customers. Under this scheme, a borrower can easily transfer his outstanding loan amount to a new lender who is offering a lower interest rate for the same loan amount. A marginal amount of transfer fees is charged by the lender for shifting your outstanding loan amount to a new lender. Also, you can shift your interest regime with the existing lender using this facility, in case a new scheme with better benefits surfaces in the market.
Factors Determining the Loan Against Property Interest Rate
Loan against property interest rates are determined based on various factors. Let us look at some of these factors and features of a loan against property.
- Floating Interest Rate
Interest rate is one of the major determinants for availing of a loan against property. Typically, a floating rate of interest is charged by lenders on LAP for the agreed loan tenor.
- Credit Score
Maintaining a decent credit score of 700 and above will help in availing a lower interest rate on LAP. Keeping a disciplined credit history for at least two years from the time you are planning to avail of a loan will play a vital role in lowering your interest rate and easing the process of a loan grant.
- Job Profile
A secured job profile with stable income provides repayment security to lenders, which in turn, acts as a catalyst for availing of lower interest rates. Lenders provide attractive loan benefits to some professionals, such as doctors, chartered accountants, because of their income stability.
- Property Value
As mentioned above, lenders grant loans using the concept of loan to value ratio. The property is physically scrutinized by an expert for current market value. Over and above that, the property papers are also legally verified. The levied interest rate depends on the quality of the property.
- LAP EMI Calculator
This online financial tool helps in assessing the interest rate before availing of a loan against a property. The LAP EMI calculator requires details, such as loan amount, loan tenor, property value, etc. to work.