Banking can often be a confusing world for the uninitiated but a loan against property is one of the simpler aspects of banking. It is precisely what the name implies “ a loan which can be availed by keeping a property as security. Banks and financial institutions offer this loan against a property, which can either be a residential/commercial building or a piece of land. The loan can be availed by mortgaging the property with the bank. The loan amount depends on the type of property and in most cases the market value of the property is considered before disbursing the loan, generally commanding about 40% to 60% of the actual market value.
Loan against property is a Secured Loan, which means that the property acts as security for the loan. In case of loan default the property can be attached to the bank and could be auctioned or sold to recover the loan amount due.
The eligibility criteria to avail a loan against property vary from institution to institution, but most of the basic criteria remain the same. The basis for most loans against property relate to the profession of the borrower. The applicant should be either one of the following to be eligible for a loan against property.Salaried Individual
An individual who wishes to take a loan against property can choose between two types of interest rates. These interest rates vary according to the duration of the loan.
The EMI for Loan against Property can be manually calculated using the following formula.
EMI = [P x R (1+R) N]/ [(1+R) N-1]
The EMI can also be calculated online by using the Bankbazaar EMI calculation tool. All one needs to do is enter the loan amount, the interest rate, the term period and the processing fee details in the calculator and the EMI is automatically calculated for them.
Yes, most banks offer loans against property to NRIs, subject to verification of all documents.Does one have to provide any security to avail this loan? If yes, what kind of security?
Yes, a loan against property can be availed only after attaching the property as security. The property so attached should have clear titles and should be free from encumbrance. It should not have any existing loan, mortgage or litigation which can impact the title of the property.What is the maximum loan one can avail against property?
Most banks offer loans ranging from 40 “ 65% of the current market value of the property. Thus the loan amount depends entirely on the property in question.What does the market value of a particular property mean?
The market value of a property refers to the estimated amount a particular property can fetch if it is sold at prevailing conditions.Can loan against property be availed against property which is jointly owned by multiple individuals?
Yes, the loan can be availed if all the co-owners of the property become co-applicants for the loan.Are self-employed individuals eligible for loan against property?
Yes, self-employed individuals can avail of this loan provided they have sufficient documents and repayment capacity.Is prepayment of loan allowed?
Yes, the loan can be prepaid, subject to certain rules as stipulated by individual banks.Does the property in question have to be insured?
Yes, most banks require the property to be insured before providing a loan.How does one get back the property pledged as security?
The property pledged as security will be returned back to the owner once the entire loan amount is cleared and there are no pending dues.Can a loan against property be availed against rented property?
Loan against property can be availed only against own property of the applicant.
Karvy Financial Service, a non-banking finance company, is looking into setting up a Housing Finance company. The private lender is yet to get the required approvals, but is hopeful of having it up and running in the next financial year. The focus of this wing of the non-banking finance company is low-cost housing. Making an inclusion for a housing segment that is affordable. The loan amounts will typically be up to Rs. 10 lakhs. They also hope to tap the low funds cost through the National Housing Board. The overall markets for affordable housing segment stands at Rs 67,800 crore as per the ICRA. Amit Saxena the Director and CEO of Karvy Finance said that they will apply for the small finance bank licence once the "on-tap" licensing is allowed by the Reserve Bank of India.
Nomura has maintained its price target and purchase rating of Rs.575 on LIC Housing. The third quarter results of the company showed that 0.85% finance was maintained on LIC Housing, thereby leading to an increase in stock prices by 0.6% at Rs.469.
Amit Nanavati and Adarsh Parasrampuria, two of the companys analysts revealed that decline in the individual mortgage growth continues to concern LIC and the industry in general, but improvements in developer share and Loan against Property (LAPs) has urged them to believe that LICs spreads can be maintained by the company and eventually help its delivery of healthy PPOP growth. The risks related to loans against property have increased and the high growth of loans against property at LIC Housing is a problem, according to the brokerage.
With lenders taking a fancy to extending loans against property, there is an increase in this finance sector. A number of lenders, such as banks and non-banking finance institutions, have recorded double and even triple-digit year-on-year growth in percentage terms in recent times.
Among public sector banks, Bank of India and Union Bank of India clocked 29% and 16.52% year-on-year (YoY) growth, respectively, in Loan against Property (LAP) in the quarter ended September 2015.
On the other hand, private sector banks like Axis Bank and IndusInd Bank recorded 32% and 43% year-on-year (YoY) rise, respectively, in LAP. LIC Housing Finance also recorded a 114% surge in its LAP portfolio in the first half of the current financial year over last year.