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    Loan Against Property

    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.

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    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.

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    Eligibility Criteria for Loan Against Property

    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
    • The individual should be a permanent employee with the government or a reputed company.
    • The minimum age to avail loan against property is generally around 24 to 25 years.
    Professional
    • The applicant can be a professional in any field (doctor, engineer, architect, chartered accountant, etc).
    • The maximum age of the applicant can be 65 years.
    Self-Employed Individual
    • The individual should be a regular at filing income tax returns.
    • The individual should have been in the same business for a minimum number of years “ generally between 3 to 5 years.
    Property eligibility
    • The property in question should be free from legal tangles and should have clear titles registered in the name of the applicant.

    Documents required for Loan Against Property

    • Valid proof of residence “ could be any utility bill or ration card.
    • Valid government approved identity proof.
    • Salaried individuals need to have their salary slips of the previous 6 months.
    • Self-employed individuals should provide a certified financial statement for the last 3 years.
    • A copy of the latest bank statement.
    • Duly filled application form with the latest photograph.
    • Self-employed individuals need to provide proof of existence of their business and the business profile.
    • Self-employed individuals are expected to provide details related to their educational qualifications.
    • Copy of income tax returns.
    • Processing fee cheque.
    • All property related documents, including the approved building plan.
    • Copy of details of all existing loans.

    Interest Rates for Loan Against Property

    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.

    • Fixed Interest Rate “ This interest rate remains fixed throughout the loan duration. It varies from institution to institution but the general rate lies in the 11 “ 15% per annum range.
    • Adjustable Rate “ This interest rate is not fixed and static, it varies according to prevailing market conditions. This could be beneficial for those who wish to keep the loan for a short duration.

    Features and Benefits of Loan Against Property

    • Multiple purposes “ the loan against property can be availed for multiple purposes. It could be for business, education, medical needs, property purchase, marriage or any other personal or professional need.
    • Low processing fee “ Most banks charge a low processing fee of 1% of the loan amount sanctioned.
    • Longer tenure “ Loans against property can be taken for tenure periods ranging up to 15 years or more, enabling the borrower gets sufficient time to clear the loan.
    • Lower interest rates “ Loans against property come at lower interest rates compared to normal home loans, where the interest rate can be as high as 20%.
    • Hassle free “ Banks are willing to provide loans against property without hassles, provided the criteria are met.
    • Easy repayment “ Borrowers can choose from multiple EMI options to choose one which best suits their repayment capacities.
    • High upper limit “ A borrower can avail loans upto Rs 10 crore and more against property, if the property meets the required criteria.
    • Property Type “ Any property type can be kept as security to avail this loan. It could be a residential or commercial property or just an empty plot.

    Loan Against Property EMI Calculator

    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]

    Where,

    • P is the loan amount taken
    • R is the applicable rate of interest
    • N is the number of months the loan is availed for

    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.

    FAQs about Loan Against Property

    Can NRIs avail loans against property?

    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.

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