LAP is a loan that is secured against property (land or property) as a mortgage with a lender. It includes home, office, or business. The borrower must own the property, and the title must be unique.
LAP is a means to raise large amounts of money at a low-interest rate. Interest rates on these types of loans are slightly higher. Some paid people use this product to cover major expenses, such as child marriage or their education. Most lenders typically fine the loan amount up to 75% of the current market value of the lent property.
However, you should not borrow unnecessarily just because you qualify for a larger loan amount and stick to the right funding needs to make it easier for you to pay off the loan on time. Did you know that as a salaried individual, you are eligible for a loan against property?
You can secure a loan to the extent of 60 times your net monthly income. Thus, if your salary is INR 30,000, you can avail of a mortgage loan of INR 18 Lakhs. The bank will offer EMIs 60-70% (INR 18,000-21,000) of your monthly income (after tax deductions).
You will need a high credit score for the lender to accept your loan application. However, in the case of secured loans, banks may sanction property loans to individuals with a lower credit score.
This blog dwells on the rules you must opt for while taking a loan against property.
When you offer your property as collateral for a loan, you remain the lawful and rightful owner. But the lender gets conditional ownership over it until repayment. If you are unable to pay back, the lender can take possession of the property.
Therefore, you must strategically plan your EMIs based on your financial status. Compare the various available lenders to opt for the one whose terms are good for you. The scale is —the EMIs should not exceed 65% of your net monthly income. Also, consider your present expenses to check if you can conveniently pay the EMIs month after month.
Loan Against Property Interest Rate
True that you can extend the loan over a long period, up to 15 years. Moreover, it may seem the right thing to do. The monthly EMIs become cheaper. But the longer the tenure, the more expensive it is, as you have to pay interest every month.
EMIs are of two components, Viz. the principal amount and interest thereof. The loan against property interest rate varies depending on the lender; 9-15%pa. You can also choose between overdraft and lump sum facilities.
While securing the loan, if it is difficult to pay higher EMIs, opt for the lower one. But as your annual income rises, raise the EMIs to repay the loan at the earliest.
Delay in EMI Payments
Delay in EMI payments incurs penalties. The penalties not only make the borrowing more expensive but also affects your credit score. A bad credit score can make it difficult for you to secure loans in the future.
Despite careful planning, there could be a sudden turn of events that drain your finances. Prepare for such contingencies by calculating on the EMI calculator to set aside the repayment amount.
Evaluate the Property
Self-occupied or rented out residential properties lawfully owned by the borrower qualify as LAP collateral. The property may be vacant land, a commercial building, or even a house that you own. If the property has multiple legal owners, the loan application should be in the name of all owners.
On receiving your loan application, the bank will send an appraiser to evaluate the property offered as collateral. The bank considers the age, location, and condition of the property to ascertain its market value.
Lenders generally grant 40-60% of the property’s market value as a loan. Avoid rejection because a property is old by renovating it. Also, clear the title by freeing the property from previous liens.
Implementing and using LAP is a fairly quick and easy process. You can apply directly through the lender’s website or an agent. However, it is essential to work with a known and reputable agency or institution to avoid complications in the future.
You can read reviews and comments from other borrowers to help make the right decision. Working with someone your trust is very important because you do not want your confidential information and documents to fall into the wrong hands. After all, they can be misused.
You are now aware of the rules for the approval of loans against property. Owning a property is not enough to secure a loan. Your favorable credit score, steady monthly income, etc., will all contribute to ensuring that you secure a loan and repay it in time.
Keep in mind that LAPs are usually large loans. So that, processing fees can be significant. In addition, the LAP used for the floating rate does not charge an early payment fee. Experts advise borrowers to choose the term of their LAP primarily based on their ability to repay.