As the name suggests, a loan against property (LAP) is 37 39a secured mortgage that you can take by keeping your property as collateral with the bank. The loan can be taken for education, for marriage, for any medical emergency, for business expenses or other personal needs. The loan is granted on the basis of the value of your property as per the market rate.
The loan can be taken against a residential or commercial property. The documents of the property are kept secured by the bank or the lender as collateral, which is returned after the loan is successfully repaid. In case the borrower fails to repay the loan amount, the bank or lender has the right to auction the property and recover the debt. Whereas a loan against property is a better option to go for in times of urgent need, you need to be very cautious while availing it.
Comparison of interest rates
The rate of interest for loan against property is fixed as well as floating. Fixed interest rate is where the rate of interest remains the same throughout the loan tenure, whereas, the floating interest rate fluctuates as per the market rate. Loan against property rates vary from one bank to another. Since you are keeping your property as a mortgage, the interest rate is quite low. Generally, the rate of interest varies between 9.80% -14.50% per annum. Besides, the borrowers are advised to make a comparative analysis between the interest rates of different banks before availing the loan.
Banks go through all the property documents of the applicants. The applicants should make sure that all the property documents are genuine, and there is no dispute going on before applying for the loan. A bit of inaccuracy can lower the chance of getting the loan.
Opt for a longer tenure
Most of the banks offer 15-20 years of loan tenure. The borrowers can repay the loan amount within 20 years. The processing fee for the loan is 1% of the loan amount with GST( 18% of the processing fee). Besides, the loan tenure depends upon the age of the applicant and the repayment ability.
Check the eligibility and EMI
A person eligible to avail a loan against property should be of age 33-58 years. The bank grants a loan against property on the basis of your repayment capability and the current value of your property. As the loan tenure is longer, the loan against property EMI will be low and will be calculated on the basis of loan amount and interest rate. You can calculate the monthly EMI based on your current monthly income. Moreover, the loan eligibility is calculated based on your income, property type and your repayment capacity.
Make sure you avoid over-leveraging
Over leveraging means borrowing a large sum of money. It would be best if you do not borrow more than what you can repay. Taking up a large amount of loan can create a risk of loan default which may eventually lead you to lose your property. So, the borrowers should take up a certain amount of money as a loan which they can easily repay without stressing their finances too much.
Loan against property is a popular loan option generally taken in time of an emergency. Thus, if you are in need of urgent cash, you may opt for availing a loan against property. However, before applying for the loan, you should under the differences and then opt for one.