Ever thought your house could be more than just a shelter? Well, you’re in for a treat. Yes, we’re talking about a loan against property. It’s like tapping into a secret reserve you didn’t know existed.
What’s the scoop? Well, it means you can harness the equity built up in your home to secure a sizable loan, all while keeping the keys to your front door. Pretty cool, right? This is what getting a loan against property can do for you.
Here’s what you need to know:
- Your home isn’t just a home; it’s a financial ally.
- Banks might offer you better terms than those sky-high personal loans.
- Imagine using that cash for anything from launching your dream startup to covering university fees.
But hold up—before you start planning how to spend all that cash, there are a few things you should know. In this post, we’re going to walk through everything you need to know about loans against property. We’ll cover the good stuff, the not-so-good stuff, and help you figure out if it’s the right move for you.
What is a Loan Against Property?
A loan against property is a type of secured loan where borrowers use their property, like a home or a commercial building, as collateral to secure a loan. This means the lender holds the property as security until the loan is fully repaid. The amount you can borrow usually depends on the property’s current market value, often a percentage of that value.
Loan Against Property Interest Rates
| Banks/ NBFCs | Rate of Interest | Maximum Loan Amount |
|---|---|---|
| SBI | 10.60% p.a. – 11.30% p.a. | Rs. 7.5 Crore |
| HDFC | 9.50% p.a. – 11.00% p.a. | 65% of the market value of the property |
| IDFC | 9.25% p.a. onwards | 50% – 70% of the market value of the property |
| Tata Capital | 14.25% p.a. onwards | Depending on the market value of the property |
| Axis Bank | 10.50% p.a. – 10.90% p.a. | Rs. 5 Crore |
| Kotak Mahindra Bank | 9.50% p.a. onwards | Rs. 5 Crore |
| Bank of India | 10.10% p.a. Per lakh | Rs. 5 Crore |
| LIC Housing Finance | 9.70% p.a. – 11.55% p.a. | Rs. 2 lakhs onwards |
| PNB Housing Finance | 9.24% p.a. – 12.75% p.a. | 70% of the market value of the property |
| ICICI Bank | 10.85% p.a. – 12.50% p.a. | 75% of the market value of the property |
Features of LAP
- Substantial Loan Limits: Banks typically offer loans ranging from Rs. 2 lakhs to Rs. 5 crores, providing the financial flexibility necessary for significant investments or expenditures, whether for personal or business purposes.
- Attractive Interest Rates: Interest rates for these loans start at competitive levels, often around 9.25% per annum, helping to keep borrowing costs reasonable and manageable over the term of the loan.
- Long Repayment Terms: You can choose from repayment periods extending up to 240 months (20 years). This flexibility allows you to tailor your repayment plan to suit your financial circumstances, opting for either shorter terms for faster payoff or longer terms for smaller monthly payments.
- Diverse EMI Options: Banks provide various EMI schemes to accommodate different financial situations. This includes fixed EMI plans for those who prefer consistent monthly payments and step-up plans where payments increase over time, suitable for borrowers expecting an increase in income.
- Versatile Usage: The funds from a loan against property can be used for a wide array of purposes, from personal expenses like weddings or vacations to professional needs like business expansion or emergency funds.
- Acceptance of Multiple Property Types: These loans can be secured against various types of properties, including residential, commercial, and industrial properties, offering you a broad base of assets to leverage for your financial needs.
- Overdraft Facility: Some banks offer an overdraft facility with their loan against property, allowing you to withdraw funds as needed and pay interest only on the amount used. This feature is particularly beneficial for managing cash flow and dealing with unexpected expenses.
LAP Eligibility Criteria
| Criteria | Salaried | Self Employed |
|---|---|---|
| Employment Type | Must be employed in an MNC, Public Ltd. Co., Large Pvt. Ltd. Co., State Govt., Central Govt., or PSU. | Must be a doctor, architect, chartered accountant, trader, retailer, or wholesaler. |
| Age | 21 – 65 years | 21 – 70 years |
| Minimum Annual Income | At least Rs. 2,40,000. | At least Rs. 2,50,000. |
| Occupational Stability | Minimum of 3 years. | Minimum of 3 years. |
Documents Required for Loan Against Property
General Requirements for All Applicants
| Category | Documents Required |
|---|---|
| Proof of Identity | Passport Aadhaar Card Driving Licence Voter ID Government Issued Photo ID Government Employee ID |
| Proof of Address | Aadhaar Card Driving Licence Voter ID Government Issued Photo ID Government Employee ID Utility Bill (Electricity, Gas, Telephone) Property Tax Receipt |
| Date of Birth Proof | Passport PAN Card Aadhaar Card with DOB Driving Licence Birth Certificate SSC Marksheet |
| Signature Proof | Passport PAN Card Banker’s Verification Notarized Affidavit with ID & Address Proof (not applicable for financial applicants) |
Documents for Income Proof
| Category | Documents Required |
|---|---|
| Salaried Individuals | 3 months’ pay slips 6 months’ payslips/2 years’ bonus proof (if variable pay) 6 months’ bank statement showing salary credits 2 years’ Form 16 or employment continuity proof |
| Self-Employed | 2 years’ ITR, Computation of Income, P&L, Balance Sheet with CA seal and sign 6 months’ bank statements of personal and business accounts Business continuity proof (3 years for Home Loan/5 years for LAP) Tax Audit Report (if applicable) If ITR is filed without digital sign – CPC and tax paid challan |
| NRI | 3 months’ pay slip Appointment/contract letter Continuous Discharge Certificate for Shipping cases 6 months’ Domestic NRE/NRO account statement 6 months’ international salary account statement Overseas credit report Valid visa copy/OCI card Passport copy POA details |
For Partnerships and Company Directors
| Category | Documents Required |
|---|---|
| Partnerships | Partnership Deed, List of Partners, NOC as per Axis Bank format Audited ITR along with complete financials Partnership authority letter signed by all partners |
| Company Directors | 2 years’ ITR, Computation of Income, P&L, Balance Sheet with CA seal and sign Certificate of Incorporation, Memorandum of Association (MOA), and Articles of Association (AOA) DIN of all Directors, Board Resolution as per Axis Bank format Latest Share Holding Pattern duly signed by Company Secretary/List of Directors |
Determining Property Value for a LAP
When applying for a LAP, determining the property’s value is a crucial step. Lenders assess the market value of your property through professional evaluations to decide the loan amount you qualify for.
1. Appraisal by a Professional Valuer
- Appointment of Valuer: Lenders typically appoint an independent valuer or a professional appraisal firm to assess the property’s market value.
- Physical Inspection: The valuer conducts a thorough physical inspection of the property to evaluate its condition, size, location, construction quality, and other relevant factors.
- Comparison with Similar Properties: The valuer compares the property with similar properties in the same or nearby areas that have been recently sold or are currently on the market.
2. Analysis of Market Trends
- Local Market Conditions: Factors such as the demand and supply dynamics in the area, economic conditions, and future development plans can significantly influence property values.
- Recent Sales Data: Valuers often look at the recent transaction prices of comparable properties to get a realistic sense of the market value.
3. Legal Check
- Title Verification: Ensuring the property has a clear title and is free from legal disputes is crucial. Unclear titles can significantly lower the property value.
- Encumbrances Check: Any existing liens or encumbrances on the property are identified as they can affect the property’s saleability and hence its valuation.
4. Purpose of the Property
- Residential vs. Commercial: The intended use of the property (residential, commercial, industrial) can impact its valuation due to different market dynamics and rent potentials.
- Rental Income: For income-generating properties, the current and potential rental income can be a critical factor in determining value.
5. Regulatory Factors
- Zoning Laws and Regulations: Local zoning laws and building regulations can influence the property’s usability and, consequently, its value.
- Future Infrastructure Development: Planned infrastructure projects like highways, schools, hospitals, and public transportation can enhance property values.
6. Condition and Improvements
- Age and Condition: Older properties may be valued lower unless they have historical significance or have been well-maintained or upgraded.
- Improvements and Renovations: Recent improvements or additions can increase the property’s market value if they are desirable in the market.
7. Economic Indicators
- Interest Rates: Fluctuating interest rates can affect property investment attractiveness, impacting property values.
- Inflation Trends: High inflation rates can lead to higher property values over time.
Conclusion
In conclusion, a loan against property offers a flexible and potentially high-value financing option for individuals and businesses seeking substantial funds. By leveraging real estate assets, borrowers can access larger loan amounts with relatively lower interest rates compared to unsecured loans, making it a practical choice for funding major expenses.
If you’re considering using your property to secure a loan and need guidance on how to proceed, or if you’re looking for the best deals and terms in the market, Credit Dharma is here to assist you. We offer expert advice and tailored solutions to help you make the most of your assets with confidence.
Frequently Asked Questions
Generally, you can borrow between 50% to 75% of your property’s market value. The exact amount depends on factors like your income, credit score, property type, and the lender’s policies. Some lenders may offer up to 80% for high-value properties or borrowers with excellent credit.
Most lenders accept residential properties like houses, apartments, and plots. Some also accept commercial properties such as office spaces or shops. The property should have a clear title and be free from legal disputes. Agricultural land is usually not accepted.
Interest rates typically range from 8% to 13% per annum, depending on factors like your credit score, income, loan amount, and property value. These rates are usually lower than unsecured loans but slightly higher than home loans.
Most lenders allow prepayment, but there might be charges, especially if you’re on a fixed interest rate. Common prepayment charges range from 2% to 5% of the prepaid amount. Some lenders waive these charges if you prepay using your own funds (not another loan).
Yes, loans against property are typically multi-purpose loans. You can use the funds for business expansion, education, medical expenses, debt consolidation, or any other legitimate purpose. However, some lenders might offer better rates for specific purposes like business loans.
HDFC Home Loan
SBI Home Loan
