A loan against property (LAP) can be very handy when you require finances for diverse purposes. This is a loan taken against any residential or non-residential property which has a clear title deed. This loan can be used for several needs including the higher education of children, buying a second home or even wedding expenses among others. The equity of the home in question is the collateral in this case. These loans are offered by several banks and NBFCs in India who mostly offer up to 60% of the value of the property as the loan amount.
The loan amount is calculated on the basis of the present market value of the property and any amount owed on the same is subtracted from the property value. The equity of the borrower will be the amount that is sanctioned by the lender. The rates of interest are a little higher as compared to regular home loans although they are lower in comparison to personal loans and credit card loans. The loan tenors usually vary between 5 and 20 years. There are no tax benefits on repaying a loan against property.
The equity of the property can fluctuate based on realty prices which are in turn influenced by various factors like demand, supply, rates of interest, infrastructural development and more. Locational benefits and proximity to major roads, transportation facilities and social infrastructure can boost overall home value. The home should be in a very good condition with all necessary fittings and other facilities. Investments for renovating the home will help in garnering higher value and increase overall equity. There should be no disputes over the property in question and all bills including property taxes should be paid.
The loan amount may be sanctioned as a lump sum or in parts depending on the loan agreement with the financial institution. Apart from the monthly EMIs, part prepayments can be made by customers whenever they have surplus funds in hand. Pre-payment penalties are usually not charged and the minimum amount for prepayment should be at least two EMI payments. Customers can also increase their EMIs in order to clear off the loan faster and save on interest costs. Both self-employed and salaried customers can apply for loans against property. Key documents needed include 6 months’ salary slips, ID and address proofs, and bank statements for last 6 months for salaried borrowers while self-employed borrowers have to provide documents like the balance sheet and profit and loss account for two years.
Property documents that are required include the completion certificate, registration deed, building approval blueprint, occupancy certificate, valuation report from the approved valuer of the financial institution and the latest receipt of the property tax paid.