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.
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.
Ideal situations to apply for a loan against property
- For obtaining additional funds to handle your or your child’s higher education plans
- For sponsoring wedding expenses in the family
- For widening your business operations
- For sponsoring your vacation plans
- For paying high hospital bills or other medical bills
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.
- 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.
- 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.
- 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.
- The property in question should be free from legal tangles and should have clear titles registered in the name of the applicant.
Comparison between loans against property and personal loans
- A loan against property is a secured loan, whereas a personal loan is an unsecured loan. A personal loan borrower does not have to furnish any security, whereas a borrower taking a loan against property needs to provide a residential or commercial property as a security.
- The rate of interest for loans against property is typically lower than that of personal loans. This is primarily because a loan against property is a secured loan. Hence, the risk level is lower for lenders. Therefore, even the EMIs for loans against property are lower than that of personal loans.
- The tenure of loans against property is usually higher than that of personal loans. Typically, the tenure for a loan against property is up to 15 years. On the other hand, for personal loans, the maximum tenure will be up to 5 years.
- With a loan against property, you can make good use of an idle property to get necessary funds instead of not using it.
- The loan amount for a loan against property will be fixed as per the value of the house that one wants to pledge. Meanwhile, a personal loan amount will be sanctioned depending on the income and repayment ability of the borrower.
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 and varies from lender to lender
- Adjustable Rate “ This interest rate is not fixed but static; it varies according to the prevailing market conditions. This could be beneficial for those who wish to keep the loan for a short duration.
Advantages of loans against property
- These loans come with very high tenures. Hence, you can repay your loan conveniently in small equated monthly installments (EMIs). The repayment period can range from 10 to 15 years.
- A loan against property is a secured loan and hence, you can enjoy a lower rate of interest. When a security is submitted to the lender, the lender faces lesser risk. Hence, the lender will be ready to charge a lower interest rate.
- The quantum for loan against property is generally higher than other personal loan schemes since it depends on the market value of the property being mortgaged. The maximum and minimum amount that can be withdrawn using the plan varies depending on the bank. You can apply for a lower amount also as per your requirements.
- The sanctioned loan amount for a loan against property will be determined by the price of the property that you are interested to pledge.
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]
- 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.
Top Lenders That Offer Loan Against Property
- State of Bank of India
- ICICI Bank
- Bank of Baroda
- HDFC Bank
- Axis Bank
- Kotak Mahindra
- IDBI Bank
- PNB Housing Finance
- Standard Chartered
- DBS Bank
- United Bank of India
- Canara Bank
- Allahabad Bank
- Corporation Bank
- Central Bank of India
- Indian Overseas Bank
- IndusInd Bank
- Syndicate Bank
- Bajaj Finserv
- Indiabulls Home Loans
- Tata Capital
FAQs about Loan Against Property
What are the factors that are taken into consideration while checking an application for a loan against property?
The most common aspects that are considered by a lender while checking an application for a loan against property include:
Existing debts, savings, income, the value of the property that you are interested to pledge, repayment details, income, etc.
Can one furnish a commercial property as a security for a loan against property?
Yes, one can pledge both residential and commercial properties as securities or collaterals for loans 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.