Answers to 15 Most Frequently Asked Questions on Loan Against Property

What is a Loan against Property?

Loan Against Property (LAP) is a close-ended, secured loan wherein the borrower can mortgage a residential, commercial or industrial property to procure the requisite amount of credit. LAP offers you the unprecedented flexibility to use the amount towards any cause that you wish to. Right from your child’s education to buying a new house, from the expansion of your business to a medical emergency, you are free to use the money as you please.

How is Loan Against Property different from a Home Loan?

While LAP can be used for many intentions, a Home Loan is given strictly to buy a residential property. Moreover, in case of LAP, you retain the ownership of the property offered as collateral. On the other hand, in case of Home Loans, the bank/lender is the owner of the mortgaged property, until the borrower pays the loan in full.

Why should I take a Loan against Property?

It is one of the easiest and cheapest ways to gain access to the funds required to meet your immediate financial needs and obligations. It offers numerous benefits such as –

1. Easy availability
2. Low-interest rates
3. Flexibility of use
4. Long tenure
5. Continued ownership
6. The flexibility of amount procured

Should I take a Personal Loan or a Loan Against Property?

A Personal Loan is similar to a Loan Against Property in the respect that they both are all-purpose loans. However, since a Personal Loan is unsecured, it will require you to pay a heftier interest rate.

Moreover, a Personal Loan is usually available for shorter periods of 1–5 years, while a Loan Against Property can be conveniently availed for longer tenures ranging anywhere between 5–15 years.

Then again, the processing fee for a Personal Loan is higher at around 2.5% of the loan amount, as compared to the 1% fee charged in case of Loan Against Property.

4. Who can avail of a Loan against Property?

Salaried individuals, self-employed professionals as well as business owners, are all eligible to Apply for a Loan Against Property. However, they must meet the below-mentioned criteria to avail the loan –

• Age — The applicant should be 21 years or above in age, at the time of loan commencement, and must not be elder than 65 years at the time of the maturity.
• Income — The applicant must have a steady source of income, and should be able to produce a proof of the same.
• Property value — The lenders give due consideration to aspects such as geographical location, market value, marketability and financial viability of the property before accepting it as a mortgage.
• Credit history — The existing obligations or overdue credit of a person can come in the way of being eligible for a loan against property. The better the credit score, the higher is one’s chance of getting faster approval.

5. Are Non-Resident Indians eligible to apply for Loan Against Property?

Yes. Almost all banks and online lenders provide loans to salaried NRIs who own property in India. However, most lenders offer loans only to NRIs living in select countries and working for renowned organizations.

6. Is it mandatory to disclose the purpose of availing a Loan Against Property?

No, in most cases it is not. Once the loan amount is disbursed by the lender and received in your account, you can use it at your discretion.

However, if the amount is exceedingly high, the lender may request you to furnish an undertaking stating that you will not use the money for any speculative or illegal purposes.

7. What type of property can act as collateral for LAP?

You can avail a Loan Against Property against the following:

• Self-occupied residential
• Rented residential/ commercial
• Vacant residential/ commercial
• Shared property

8. What is the quantum of money I can expect to get against my property?

You can expect to receive anywhere between 50 to 90% of the market value of the mortgaged property. This concept is known as Loan to Value or LTV.

However, the actual amount will be decided by some other factors such as your age, income, investments, financial stability, credit history and other outstanding loans in your name. In some cases, even the financial health of your spouse is given due consideration.

9. What are the taxation aspects?

Usually, EMIs (Equated Monthly Instalment) for Loans Against Property do not invite any tax benefits for salaried individuals. However, in case you’re using the loan amount towards the expansion or improvement of your business, you can claim a tax deduction for the interest paid towards the loan. Of course, you would need to furnish a proof that the funds were used towards the betterment of your business.

10. How will the lender asses the cost of my property?

The bank usually conducts a formal valuation procedure to determine the market value of the property.

11. What are the documents required for applying for a Loan against Property?

When it comes to applying for LAP, the documents differ for salaried and self-employed individuals.

Documentation for Salaried Employees

Proof of Identity (any one)

• Voter ID card

• Driving license

• PAN card

• Photo credit card

• Employee ID card

• Defence/Police/Government department ID card

Proof of Income (any one)

• Latest salary slip showing all deductions or Form 16

• Recent salary certificate

• Last six months bank statement/passbook where salary or income is credited

Proof of Residence (any one)

• Bank account statement

• Latest electricity bill

• Latest mobile/telephone bill

• Most recent credit card statement

• Latest LIC policy/insurance premium receipt

• Employers letter certifying the current mailing address

• Latest NSC

• Other similar instruments indicating the address or existing house lease agreement

Documentation for Self Employed Applicants

Proof of Identity (any one)

• Voter ID card

• Driving license

• PAN card

• Photo credit card

Proof of Income (any one)

• IT Returns to last two years

• Computation of income of previous two years certified by a Chartered Accountant

• Recent six months bank statement/passbook where salary or income is credited

Proof of Residence (any one)

• Bank account statement

• Latest electricity bill

• Latest mobile/telephone bill

• Most recent credit card statement

• Latest LIC policy/insurance premium receipt

• Latest NSC

• Other similar instruments indicating the address

12. What is the loan disbursal time?

You can expect to receive the loan amount within two weeks’ time, after the submission of all the documents.

13. Do I need to get the property insured?

Yes. The property must be insured against fire and other calamities, for the entire tenure of the loan. Your lender may ask you for a proof of insurance on an annual basis.

14. How can I repay my loan?

The most preferred way of repaying the loan is through EMIs. However, you can also compensate the amount via Post Dated Cheques (PDC) as well as Electronic Clearance System (ECS), as per your convenience.

15. Can I pre-pay my loan?

Yes. As is the case with most loans, even Loan Against Property allows the prepayment or foreclosure of the loan. While you may need to pay a specific fee (2–5% of the outstanding loan amount) to use this facility, commercial banks are not allowed to levy any charges for the same if the loan was sanctioned at a floating rate.

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