Loan Against Property (lap): What Is It?

By Author: Aditya
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Loan against Property, or LAP Loan, is also the type of mortgage loan. Such a loan is sanctioned against a tangible asset, or property, with the lender, till the repayment of the loan. The asset could be a commercial, industrial or residential property.

A property loan is the easiest way to get a lump sum amount of money as a loan, at a lower rate of interest starting from 7.5% per annum. Lenders sanction the loan between 50 to 70 per cent of the property market value. Repayment can stretch up to 20 years in the form of easy EMIs. Like any other unsecured loans, borrowers may apply for mortgage loans to meet both personal as well as business needs.

Loan Against Property Interest Rate

The rate of interest is a noteworthy factor affecting the cost of a property loan. As the loan amount is usually of a higher value and a longer tenure, the interest rate could have long-term implications on the finances of the borrower. However, availing of a lower rate of interest can reduce EMI and total payout. Thus prospective borrowers must aim to obtain a mortgage loan at a lower interest rate.

While some ...
... banks are offering the lowest rate of interest on LAP starting from 7.50%, however, the final interest rate depends on the lender, loan amount, and credit profile.

Loan Against Property Eligibility

To obtain a loan against property, eligibility is a crucial factor, and applicants must go by the books. However, the criteria vary from one service provider to another. Noted below are conditions to fulfil to apply for this type of loan:

• The loan applicant should be a minimum of 18 years old and a maximum of 70 years old
• The applicant must be salaried/self-employed, earning well to repay the loan
• The applicant must have a net annual income of Rs. 1.5 lakhs per annum
• The applicant should earn a minimum of Rs. 12,000 monthly as monthly salary and above
• The applicant must have at least 12-months work experience in the present organisation
• The loan to value amount is up to 75% of the property value, in general. It could be higher depending on the property
• The amount eligible for a loan is up to Rs. 25 crore
• The applicant must have a credit score of 750 or more
• The applicant should have a residential, industrial or commercial property

Before filling the application form for a mortgage loan, applicants must use the LAP EMI calculator to know the EMI amount on a specific loan amount, rate of interest, and loan tenure. Ensure that the EMI of the loan amount does not strain the monthly expenses.

These are some of the general eligibility criteria, which ensures higher chances of getting a good amount of LAP at an attractive interest rate. If, however, applicants do not fulfil these requirements, the finance company decides how to take things forward.

Documents Required for LAP Loan

To apply for a LAP loan, borrowers must be ready to furnish all the necessary documents. Lenders have a list of important documents required to assess the repayment capacity of an applicant and to make sure that the information provided is legit.

Though different companies may have a different set of document requirements, the general ones are noted below:

• LAP loan form duly filled and signed
• Passport-sized photographs
• Identity proof – copy of passport, driving license, PAN Card, Voter ID card
• Residence proof – ration card, electricity bill, telephone bill, rental agreement, driving license, copy of passport, bank passbook, bank statement
• Age proof – PAN card, passport, or any other valid certificate from the statutory body
• Bank statements or salary slips of last 6 months
• Form 16
• Income Tax Return (ITR) of the last 3 years
• Processing fee in the form of a cheque
• Documents of the property offered as a collateral

In addition, some other documents may be required for the loan, such as:
• Self-employed individuals must provide income statements and financials for the last 2 years. Documents should be attested by a licensed CA
• SMEs must submit audited financials of the past 2 years

Charges for Loan Against Property

Before availing this type of loan, the bank or financial institution would levy certain charges to process it. The charge usually varies from one bank to another. However, the general categories of charges are noted below:

• Processing Fee: It is a one-time, mandatory charge, payable during the loan application, regardless of the future of the loan. Even if it is rejected, the bank forfeits the processing fee.

• Foreclosure/Prepayment Charges: If a borrower wants to repay the loan much before its time, prematurely, it is known as foreclosure. If the borrower wants to pay a part of this loan before the due date, it is known as prepayment. In both these cases, banks may levy a certain amount of charge.

• Other Charges: Some sundry charges include documentation charges, legal fees, technical evaluation charges, stamp duty, title search report charges, etc.

Before taking a loan, make sure you fully understand the important aspects of obtaining and repaying the loan amount.