A fixed asset often provides immense value when you require a huge sum. Loan against property (LAP) is one such means that allows you to use a fixed asset as a source for emergency funds.
LAP is a good option to turn to in the case of planned expenses, like funds for education, wedding, or a surgery, which requires hospitalisation and funds. The rate of interest for a loan against property is generally lower.
The loan amount you can avail depends on the value of the property that you place as collateral. It can range between Rs 1 lakh and Rs 30 million. LAP comes with the risk of giving up your home if you are unable to repay. The financial institution concerned has the right to auction your home to claim the dues.
The repayment tenure can be as long as 20 years and the interest rates are between 12% and 17%. Generally a LAP takes time to process, as the valuation for the property has to be completed and verified before the loan is sanctioned.
> For what purposes can a loan against property be taken?
Loan against property can be taken for expanding business; marriage of children; higher studies abroad of children; funding medical treatments.
> What kinds of property can I mortgage for the loan? How much loan can I avail?
You can usually take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land. You can avail up to 60% of the market value of the property.
> What is the eligibility criteria to get a loan against property?
This criteria will vary with banks.
But the common factors are the income, savings, debt obligations of the borrower; the cost or value of the property mortgaged and the repayment track record for other loans, credit cards of the borrower.
> What are the interest rates and tenure for repayment offered for a loan against property?
Interest rates on loan against property range from 12% to 15.75% and the loan tenure can be up to 15 years.
> How is a loan against property different from a personal loan?
A personal loan is given without any mortgage but a LAP is secured. A personal loan usually has higher interest rates - 16 to 21%. The maximum loan eligibility is determined by the individual``s income whereas the value of the property determines the loan value in a LAP. The tenure is restricted to five years in a personal loan. LAP has tenures up to 15 years.
> What documents are required while applying for a loan against property?
Document requirements usually vary with bank.
Salaried: Photographs; identity and residence proofs; latest salary slip; form 16; bank statement of the last six months.
Self-employed professional: Photographs; identity and residence proofs; certificate of educational qualification; proof of business; income-tax returns of last three years; bank statement of the last six months.
Self-employed entrepreneur: Photographs; identity and residence proofs; certificate of educational qualification; proof of business; profit and loss and balance sheet of last three years; income-tax returns of last three years; bank statement of the last six months.
A loan against property is one of the best ways to raise money. The only disadvantage of such a loan is that if the borrower is not able to pay the loan fully, the bank or the financial institution can take possession of the mortgaged property.
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