The interest rate, LTV ratio, processing fees, repayment tenure can vary widely across lenders. So check with as many lenders as possible.
If you own a property and have an immediate financial requirement such as a medical emergency, or higher education, or furnishing of the house, a loan against property (LAP) can be a better option as compared with an expensive personal loan. LAP can be used for any personal or business needs other than speculative purpose. The lender will not ask for any documentary evidence for the end use of the funds.
While the loan-to-value (LTV) would be 60-70% of the property, the maximum funding depends on your principal outstanding on all existing loans and the LAP being availed, infrastructure around the property, location and age of the property. While paying the EMI for the loan, you can continue to stay in the property. However, you can’t sell it till you clear the loan. In case of any default on repayment, the lender can sell the property to recover the amount.
Factors to keep in mind
As the lender will offer you a percentage of the market value of the property, you must know how much you need to borrow. Adhil Shetty, CEO, Bankbazaar.com, says the borrower must compare the interest rates levied by different lenders on the same loan amount. “Check the EMI amount on the chosen tenure. Some lenders may charge you for prepayment and foreclosure of your loan, and you might also have to pay loan processing and legal fees. Read the terms and conditions carefully,” he says.
The interest rates, processing fees, LTV ratio, repayment tenure, disbursal time of LAPs can vary widely across various lenders, depending on the lenders’ own credit risk policies and their credit risk assessment of the LAP applicants based on their credit profile and their property features.
Ratan Chaudhary, head, Home Loans, Paisabazaar, says LAP applicants should compare the features offered by as many lenders as possible before applying to any particular lender. “As some lenders may offer preferential interest rates to their existing customers, start the process by contacting banks, housing finance companies or NBFCs where you already have a loan, credit card or deposit account,” he says.
Some lenders charge lower interest rates from LAP applicants leveraging their self-occupied residential properties than those offering commercial properties as collateral. Again, some offer differential rates on LAP depending on the repayment tenure or loan amount/LTV ratio required by the borrower. Moreover, as the tenures of LAP usually go up to 15 years, with some up to 20 years, choose the loan tenure after factoring in your EMI repayment capacity. “Opting for a shorter tenure would result in higher EMIs but at lower interest cost whereas a longer loan tenure would lead to smaller EMIs but would incur higher interest cost,” says Chaudhary.
What do banks consider?
Before approving the loan, banks will perform mandatory due diligence on the property relating to government approvals, location, specifications, market value and existing loans. Once the banks legally clear the property, they would check the borrower’s financial profile, such as occupation, age, income, credit score, etc. “Banks also ask you to submit the down payment details and NOCs from the builder/RWAs and authority in case the property is leasehold. However, property-related approvals may vary from state to state and from one property type to other,” says Shetty.
Mortgage market
* First contact banks, HFCs or NBFCs where you already have a loan, credit card or deposit account to get the best terms
* You have to submit property documents, title deed including chain of ownership, proof of no encumbrances on it and the approved plan
* Some lenders charge lower interest rates from applicants leveraging their self-occupied residential property than those offering commercial property
