Loan against Property
Loan against Property is one of the variants of the Personal loans and are secured loans offered by banks and financial institutions using one or more properties owned by you as collateral. One can avail these mortgage loans for commercial property or residential property collaterals. The property is mortgaged and a fixed percentage of the prevailing market value of the property (normally between 60-70% of the value of the property) is given to the burrower as a loan. Though such a property is mortgaged with the lender, you are still allowed to continue using it for residential or commercial purposes.
These loans are a better option as compared to a personal loan due to the comparatively lower rate of interest charged by the lender. Additionally, unlike gold loans, where the gold ornaments are deposited with the bank and you do not get them back till the loan is paid in full, you can continue using the property used as collateral while you are repaying the loan.
Loans against property area highly preferred form of loans in India, and have much more easily available than ever with the surge in banks and NBFCs providing these loans. Along with being cost-effective, these loans are reasonably convenient to avail and repay due to the relatively low Loans against Property interest rate.
You can make mortgage loan application for following purposes:
- Expanding your business
- Getting your child married
- Funding medical treatments
- Sending your child for higher studies abroad
- Funding your dream vacation
Features of Loan against Property (Mortgage Loan)
- In case of a loan on property, financial institutions offer higher loan amount available for longer tenure and at attractive rates as compared to other loan plans.
- Quick and hassle free process of Loan against property with speedy approvals
- Residential and commercial properties are accepted as collateral to get loans against property.
- Mortgage Loans are an excellent debt consolidation tool.
Some of the several reasons for you to apply loan against property are:
Loan against property is a secured loan which means it is offered only when you offer a property owned by you as security with the bank. Personal loan interest rate is allocated according to the customer's salary, the amount being borrowed and other criteria as specified by the bank.
- These are long-term loans and repayment periods can be anything from 10 years to 15 years.
- The amount you can borrow ranges from Rs. 300,000 to Rs. 100 Crore (lower amounts may also be available).
- The rate of interest for the loan and the loan amount varies on a case by case basis depending on the type of property and other factors specified by the lender.
- Banks also bill the applicant for the administrative charges incurred when processing the application such as property valuation and its processing fee.
For salaried individuals, and for professionals and businessmen who are self-employed, the loan against property eligibility requirements in banks or for other institutions are pretty similar.
According to the eligibility criteria to avail Loan against property, you:
- Must be an Indian national
- Should be at least 21 years at the time of submission of the loan application
- Must have been employed by the current organization or should be involved in the current business for a specific number of years
- Meets the minimum required salary as well as monthly repaying capacity
- A good credit history with proven track record of timely loan EMI and credit card bill repayment may help secure a lower interest rate and reduce processing times
Depending on whether you are salaried, or a self-employed professional, or a self-employed businessman, banks ask for different set of Loan against Property documents.
The documents required for loan against property are as follow:
For salaried individuals:
- Proof of identity and residence proof
- Salary slips for past 3 months
- Form-16 issued by current employer
- Bank statements of salary account for the previous six months
- A cheque covering the administrative costs/processing incurred by the bank in processing the application
For Self-employed Businesspersons:
- Proof of identity and residence proof
- Educational qualification certificates, degrees, diplomas, and other academic credentials
- IT Returns of the three years preceding the one in which loan is applied for
- Bank statements of six months preceding the one in which loan is applied for
For Self-employed Professionals:
- Identity and Address proof documentation
- Certificates that prove your academic qualifications/credentials
- All registration/licensing certificate pertaining to your profession
- Business existence proof/business profile details
- Previous 3 years’ balance sheets as well as P&L Statement of the company.
- Acknowledged Income Tax statements of the company and self for previous 3 years
- Last 6 months’ bank statement.
Loan against property is a secured loan i.e. the bank keeps the property documents as collateral during the term of the loan. Due to the reduced risk perceived by the bank, the Loan against Property interest rates on offer are quite low and close to the base rate. Currently, the interest rates on loan against property start at as low as 9%.
Different banks offer Loans against property with options of fixed interest rate and floating interest rate to applicants to choose from.Fixed Interest Rate: Fixed interest rate on loan against property remains stable throughout the loan tenure. However different financial institutions levy different interest rates for the Loans against property.
Floating Rate: Floating or adjustable interest rate is not fixed and remains static. This type of interest rate varies according to prevailing market conditions.
Difference between Loan against Property and Personal Loan:
- Personal loan is an unsecured loan on the other hand Loan against property is a secured loan.
- For personal loan, an individual can take a loan for personal use without any security or guarantor; however, for loan against property, an individual has to mortgage the residential or commercial property.
- Rate of interest for LAP or Mortgage loan is comparatively much lower than Personal loans.
- Equated Monthly Installments (EMI) for LAP turns out cheaper; whereas for Personal Loans, an individual has to pay higher EMIs.
- The sanctioned loan amount for LAP depends upon the value of the property and in case of personal loan; an individual’s income defines the amount of sanctioned loan amount.
- Loan tenure of mortgage loans is higher as compared to Personal Loan. For LAP, a person gets loan for a maximum of 180 months (15 years) and for Personal Loan, an individual gets loan for 60 months (5 years)
- Loan against property is an ideal way to employ an idle property to raise required capital rather than resorting to high interest personal loans.
Q. Can I use the money obtained from Loan against property for business activities?
Ans. Yes. You can use the loan obtained by mortgaging your property for business activities as well as for any personal financial distress you might be facing. However, you are not allowed to use the money for any illegal or speculative activities.
Q: Who is eligible for Loan against Property?
Ans: The Loan against property criteria vary from one bank to another. However, the common factors that all banks consider are:
- Your income, savings, debt obligations
- Cost/value of the property mortgaged
- Your repayment track record for other loans, credit cards
Q. Do I need a co-applicant for this loan?
Ans. A co-applicant for loan against property is mandatory only when the property being mortgaged is owned by more than one person. In such as case, all co-owners of the property mandatorily become co-applicants.
Q: What do you mean by the market value of a property?
Ans: The market value of a property is the estimated value in terms of money that a property can raise if it is sold at prevailing conditions.
Q: What types of properties are accepted by lenders providing Loan against property?
Ans: Lenders accept various types of property whether they are residential (rented out and self occupied) or commercial use properties. A plot of land without any construction can also be considered as appropriate collateral by the prospective lender.
Q. Are only residential properties eligible for loan against property?
Ans. No, you can avail a Loan against mortgage of residential/ commercial property owned by you.
Q: For how long can I can take a loan against property and what interest rate will I be charged?
Ans: The tenure of a loan against property can be as long as 15 years, with interest rates ranging from 12% to 15.75%. The exact tenure and interest rate on your loan may vary to a certain extent from one lender to another.
Q: Can NRIs avail loans against property?
Ans: Yes, several financial institutes offer loans against property to NRIs, subject to verification of all documents.
Q: Do banks accept uninsured property to sanction loan against property?
Ans: No, in most cases, banks require the property to be insured before approving a loan.
Q: Can I prepay my loan against property?
Ans: Yes, you can prepay the loan taken against property; however, you would have to abide by certain terms & conditions levied on prepayment of loan by the particular bank.
Compare Loan Against Property Interest Rates
|Bank / Provider Name||Interest Rates||Loan Processing Fees|
|HDFC BANK||10.5% onwards||0.5% of loan amt. or Max. Rs. 10,000|
|ICICI BANK||9.7% onwards||0.5% of loan amt.|
|AXIS BANK||9.75% onwards||0.25% + ST|
|LIC HFL||Upto 1 Cr - 10.50%; 1cr to 3 cr 10.80%; 3 cr to 5 Cr 11%||Govt Emp- Rs 1000 + ST, Others Rs2500+ST|
|PNB HFL||10.25% onwards||Rs 10000 for salaried / 0.50% for self employed|
|TATA CAPITAL||11.25% onwards||1%|
|CITIBANK||Salaried :10.00% and Self Employed :Upto 1 Cr 10%, 1 Cr to 3 Cr 9.75%, Above 3 Cr 9.5%||0.25%|
*The interest rates provided above are of key Banks and Housing Companies Operating in India, indicative and liable to change periodically.