A Loan Against Property (LAP), also known as a mortgage loan, is a type of secured loan in India where individuals can borrow money from a financial institution, such as a bank or a non-banking financial company (NBFC), by pledging their property (residential or commercial) as collateral.

Eligibility Criteria

To be eligible for a Loan Against Property, individuals typically need to be the legal owners of the property being offered as collateral but now a days corporate ownership is also accepted. Lenders consider borrower's age, income, creditworthiness, and the value of the property when determining eligibility.

Types of Properties Accepted:

• Residential properties (houses, apartments etc.)
• Commercial properties (shops, offices etc.)
• Industrial properties (warehouses, factories etc)
• Plots (Residential, commercial, industrial)

Loan Amount

The loan amount is determined based on the property's market value, typically a percentage of the property's value. Lenders may offer loans ranging from 50% to 80% of the property's value, depending on various factors.

Loan Tenure

Loan Against Property tenures can range from 5 years to 20 years. Longer tenures may result in lower EMIs but higher overall interest payments.

Interest Rates

LAP interest rates can be fixed or floating, depending on the lender and the chosen loan product. However now a days most of the banks are offering only floating rates. Interest rates may be lower compared to personal loans because the loan is secured by collateral.

Usage

Borrowers can use the loan amount for various purposes, such as business expansion, education, medical expenses, debt consolidation, and many more purposes.

Repayment Options

Borrowers can repay the loan through Equated Monthly Installments (EMIs) or as per a structured repayment plan agreed upon with the lender. Banks and some NBFCs also offer drop line OD under LAP so as to provide interest saving option to client and an alternate of pure OD product.

Tax Benefits

Unlike home loans, Loan Against Property in India doesn't offer tax benefits on the principal amount. However, interest paid on the loan is eligible for tax deductions under Section 37(1) of the Income Tax Act, 1961, if the funds are used for business purposes.

Documentation

Borrowers are required to submit various documents, including property-related documents, identity proof, income proof, and KYC details as part of the loan application process.

Prepayment and Foreclosure

Borrowers can prepay or foreclose their Loan Against Property, often without incurring significant penalties. However, lenders may charge nominal fees for such actions. To avoid such charges specific approval from lenders to be taken in advance.

Risk Factors

One of the significant risks associated with LAP is the potential loss of the pledged property in case of loan default. It's crucial to ensure repayment capacity before availing such a loan.

Loan Processing Fees

Lenders may charge processing fees and other charges when processing a Loan Against Property application.

Credit Score

A good credit score is essential for obtaining favorable loan terms and interest rates.

Loan to Value (LTV) Ratio

Lenders determine the maximum loan amount based on a percentage of the property's value, which is known as the Loan to Value (LTV) ratio.

Evaluation of Property

Lenders typically conduct a property valuation to assess its market worth before approving the loan.

Loan Disbursement

Once the loan is approved, the lender disburses the loan amount in a lump sum or in stages, depending on the borrower's requirements.

Documents required

1. Identity Proof (Applicable for both salaried and self employed cases)
2. Nationality / Address Proof / Ownership proof (Applicable for both salaried and self employed cases)
3. Existing Home Loan Documents (Applicable for both salaried and self employed cases)
4. 3 months Salary Slips (Applicable for salaried cases)
5. One year Bank Statements (Applicable for both salaried and self employed cases)
6. 3 years complete audited financials for Self employed
7. Form 16 for last 2 years and Job continuity proof (Applicable for salaried cases)
8. 3 years IT Returns with computation of income (Applicable for both salaried and self employed cases)
9. Complete set of Property Documents with OC / CC and approved map (Applicable for both salaried and self employed cases)
10. Passport Size Photographs (Applicable for both salaried and self employed cases)