If you are planning to take a loan against property (LAP) you should first know that you can avail LAP only by pledging it as collateral with the bank. Meaning, you have to surrender all your documents including sale deed and can only reclaim it after you repay the principal and interest amounts in full. You can take a loan against property only when it is self-owned,
No matter whether it is residential or commercial
No matter whether it is rented, self-occupied or vacant
Your eligibility to repay the loan and your credit score are vital to getting approval for LAP. If you do not repay and turn defaulter, the threat of losing your property is very real. Hence it is imperative that you familiarize yourself with the five main features of a loan against property listed below.
1) Rate of Interest
The rate of interest on LAP is between 9% and 14% and differs from bank to bank. Do not commit yourself to any lender until you have done an interest rate comparison of loan against property and are convinced that it is a good deal. This also means you compare it to other forms of loan like a personal loan and home loan if your need can be fulfilled by those credit instruments as well. In all likelihood, you will find the rate of interest on LAP is less than that of a personal loan.
2) Loan Amount
The principal amount of your loan is determined by a very careful assessment of the value of the property. The maximum amount that you can borrow will never exceed the current value of your property – in fact, most lenders sanction only between 60% and 70% of the value of your property. Nevertheless, feel free to approach different banks and non-banking financial companies to get an estimate of the loan against property your flat or commercial space commands. Visit Finserv MARKETS online now to get started. You may realize loan amount is also higher for LAP as against personal loans.
3) Loan Tenure
Usually, the loan tenure in LAP cases is extended up to 15 years by many lenders though the maximum tenure possible may be as long as 30 years. The length of the tenure will make the EMI amount contract proportionately. Unless you use the loan amount for another real estate investment and the EMIs are impacted by rate changes in your floating interest rate. Longer tenure no doubt also increases your total outgo as interest rate gets compounded. So it is advisable to make an interest rate comparison of loan against property.
Then again, there are some innovative practices like “proactive downward repricing” introduced by some players like Bajaj Finserv to provide customers parity and protect them from an increase in loan pricing. Increase in rates of interest will be effected only when there is an increase in the cost of funding.
4) Processing and Penalty Charges
Like any other loan, there are charges for processing ranging between 0.50 % and 4%; some charge you upfront even before the loan is sanctioned while others deduct it from the principal amount. Stamp duty charges are slapped as per state laws; convenience charges vary between 0.25%and 2 % (switching from floating rate to fixed rate and fixed rate to floating) and penalty prepayment fee of 1% to 4% if the outstanding loan amount, especially if the prepayment exceeds 25% of the outstanding loan amount. Some lenders also impose late payment charges for delayed EMIs, cheque bounce charges, duplicate repayment schedule, cheque swapping and so on. Begin your journey by exploring the fee structure for a Bajaj Finserv Loan Against Property, hosted on Finserv MARKETS, and compare the cost of borrowing with the rest vis- a- vis services.
5) No Tax Benefit
If you are considering LAP in order to make tax savings, drop the idea. You cannot claim any tax benefits.
One last word: If your property is old and dilapidated or in need of extensive repairs, your loan will not be sanctioned. Lenders also do not encourage applications for a loan against property for a plot or for real estate that is already mortgaged to another bank. Though commercial property qualifies, hotels do not; residential properties used for commercial purposes and those which house a tenant for longer than five years without renewal of rental agreements will also be rejected.
Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!