Loan against property commonly termed as LAP, is a kind of secured personal loan. The loan is availed by mortgaging an existing property with the bank. LAP is availed by a customer or a business to meet any expense that a bank finds suitable for funding.
The amount of loan is decided by bank on the basis of income of the customer and the market value of the property. The property to be mortgaged should legally and technically be acceptable for the purpose of creating mortgage.
How much can I get?
The deciding factors in a LAP are Loan to Value (LTV) ratio and income eligibility.
LTV ratio (expressed in percentage) is the ratio of the required loan amount to the market value of the property being mortgaged. Generally banks keep a lower LTV on a LAP as compared to the home loans. The LTV in a LAP ranges between 50% to 70%, depending on the type of property being mortgaged, loan tenure and the current usage of the property.
Income Eligibility is the other important factor to decide how much loan can be extended to a potential borrower on the basis of his/ her income. You can use our eligibility calculator to assess your income eligibility.
What should I know about Interest Rates?
The interest rate on LAP is generally higher than on home loans. The mark up is because the end use of the funds in not buying a home and hence is considered riskier than the home loans.
The interest rate on the loan is floating also termed as variable rate. The loan gets linked to the MCLR (Marginal cost lending rate) of a bank OR PLR/ Floating reference rate (FRR) of a HFC (Housing Finance company).
The margin fixed at the time of loan disbursement remains constant through out the loan term, hence the rate fluctuates with the change in MCLR or FRR as declared from time to time.
How do I pay back the loan?
The loan gets paid through regular monthly payments termed as EMI (Equated monthly installment). As the word equated suggests the payment remains equal for the entire term of the loan. EMI comprises of the interest payment and the principal payment. Depending on the loan tenure opted; the component of Interest keeps changing.
You can use our EMI calculator to calculate the EMI for any loan amount for a particular tenure on a given rate of interest.
The loan tenure for a LAP can be up to 15 years, depending on the age of the applicant.
The more the tenure of the loan, the higher is the component of Interest in each EMI. You can use our Amortization calculator to understand it better.
Can I have co-borrowers in the loan?
Yes, you can have multiple borrowers on the loan. It’s mandatory to have all property owners as co-borrowers on the loan.
Co-applicants are added on the loan either to increase the income eligibility or because of co-ownership in the property being purchased.
However, banks permit only close family relatives to be co-applicants on loan hence co-borrowers on the property.
Can I pre-pay or foreclose my loan?
Yes, some banks allow you to part pre-pay the loan at any stage of the loan. Most banks and NBFCs allow part pre-payment up-to 25% of the principal outstanding in each financial year without any penalty.
For foreclosing a loan, If the loan is in an individual’s name no charges are applicable. However, in a LAP very often has a business involvement i.e a business entity is a co-applicant or a primary applicant on the loan, in that case foreclosure attracts a penalty ranging from 2% to 4% of the amount foreclosed.
When you part-prepay a loan, you can opt to either reduce the balance tenure of the loan or reduce the monthly EMI you pay.
Do I pay any charges while availing a loan?
All banks charge a fee from a borrower to process the loan application. The fee is termed as processing fees or administration charges.
In LAP the fees is higher than in a home loan, the fees ranges between 0.25% to 1% on the disbursed amount.
We help you negotiate best terms with the lender; hence we try and sub vent part of the fees to make you save money while applying a loan through us.
What is the break up of Interest & Principal payment in each EMI?
Each EMI you pay for the repayment of the loan comprises of two components – Principal & Interest. The break up of these two components in each EMI depends on the loan tenure. The lower the loan tenure, higher is the principal payment in each EMI.
The break up can be best understood by making an amortization schedule of the loan.
Amortization refers to spreading payments over multiple periods. It is the paying off a loan with a fixed repayment schedule in regular installments over a period of time.
You can download the amortization schedule of any loan by using the amortization schedule calculator .