Loan against property (LAP) is a type of secured loan that borrowers avail by mortgaging their commercial or residential property. Opting for LAP is a better option since applicants can obtain funds at comparatively lower interest rates than other forms of unsecured credits. Moreover, the credits usually come with longer repayment tenor that eases paying off the debt.
There are few parameters that you should know before zeroing down for a LAP. Read about the factors to keep in mind while availing of a property loan.
# Eligibility Criteria
The eligibility criteria for applying for a loan against property are different for salaried applicants and those who are self-employed professionals. Borrowers can qualify for a loan against property by meeting these simple eligibility criteria.
-> For Salaried Employees
- The age of an applicant should be between their early 30’s to their late 50’s.
- Candidates must be a citizen of India.
- Applicants must be an employee either in an MNC, a public sector or a private sector.
-> For Self-Employed Professionals
- Applicants between the ages of 25 to 70 years.
- The applicant must be a self-employed individual with a regular source of income.
- The applicant must be an Indian resident where the lender operates.
# Loan Amount & Disbursal
The maximum loan amount is determined depending on the valuation of the mortgaged property. Lending organizations provide 50% to 70% of a property’s market value.
The market value of a property is estimated depending on the age of the property, infrastructure, geographical stability, etc. Once the valuation process is completed, lenders approve the loan amount for an applicant based upon factors such as credit score, debt to income ratio, etc.
# Interest Rates On LAP
The interest rates on mortgage loans are typically low, starting from 10.10% per annum for salaried individuals.
Must Read: Mortgage Loan Interest Rate
Moreover, certain financial institutions also provide special offers and benefits on loan against property. Some NBFC that provide pre-approved offers that make the process of availing finance convenient and help a borrower save time. These offers are available on home loans, business loans and personal loans along with several other financial products. You can check your pre-approved offer by providing a few essential details like your name and contact number.
# Tax Benefits
You can avail tax benefits on your loan against the property if you utilize the borrowed amount for renovating your mortgaged property. Salaried individuals can also enjoy tax exemptions if they purchase another residential property with the borrowed sum. It will be considered under Section 24(b), which is up to Rs. 2 Lakh in a financial year.
Other than that, Section 37(1) of the Income Tax Act specifies that the interest paid and associated costs can be claimed as business expenditure.
# Prepayment Tenor & Processing Fee
If a borrower intends to prepay their loan against property, they will have to pay a prepayment charge of 4% under the RBI guidelines. Although, applicants who borrow loans on floating rates usually are not charged with such penalties.
Applicants will also have to pay a one-time processing fee of 1.5% while applying for credit.
# Repayment Tenor
The repayment tenor for a loan against property generally extends from 2 to 20 years which is comparatively longer. Opting for longer tenor is more preferable since shorter tenor results in higher EMIs. You can choose to prepay the loan amount if you want to reduce the overall interest cost.
Now that you know all the factors of availing a loan against property, be sure to check all the parameters before you apply for one. Also, enjoy lower interest rates with tax benefits and extended repayment tenor on LAP.