Loan Against Property

A secured loan given for personal use against a residential property or a commercial property as collateral is known as “Loan against property” (LAP).

A borrower can put this money to any personal use like making a down payment for buying another property, starting a business, renovating a house, battling medical crisis etc.

Generally, you can avail of a loan of up to 65% of the property market value.

The difference between a “HOME LOAN” and a “LAP” is that a HOME LOAN is taken for buying or constructing a new house whereas LAP is like a secured personal loan that is taken against the property which is already owned by you.

LAP can be availed for either of the below purposes.

• Going on a vacation.
• Starting a business.
• Marriage.
• Repairs, renovation or extension of existing house.
• Transfer of loan balance from one bank to another bank and many more

Getting through the loan process and shortlisting the best lender is a very stressful experience.

Applicants are flooded with so many loan providers, each one of them providing almost similar deals which leave them confused as to where to go and what to do.

One should note that every lender has a defined set of criteria according to which they sanction the loan. Not all lenders will be flexible enough to lend to everyone who walks in.

Sometimes, due to inadequate knowledge, home buyers end up with the wrong lending institution where not only their loan gets rejected but they also end up losing all their time, money and energy.

Hence, it is very important to get your basics clear before submitting your personal documents to banks and taking a leap forward.

The following are some of the common reasons which may form the basis of rejection of your HOME LOAN application by many banks or institutions.

• The area of your house is less than 200 sq ft.
• The property is jointly owned with your sibling.
• Bank statement reflects cheque bounces.
• Poor CIBIL records.
• Insufficient income.
• The building does not have an occupancy certificate.
• One of the chain agreements is unregistered.
• Financial irregularities like changing jobs too frequently, filing 2 years ITR in the same year especially just before applying for a loan, delay in salary payments, the gap in employment, salary being paid in cash etc.
• The building is too old and the structure has become too weak to sustain for long enough.
• Some of the builders or projects are not approved by the lender and many more.

 

 

LOAN AGAINST PROPERTY (LAP) PRODUCT VARIANTS

The following are some of the most popular variants of the LOAN AGAINST PROPERTY.

1. Term loan – “Term Loan” is the regular LAP product where you are expected to make minimum EMI payments regularly for a specified period at a specified rate.

Assuming, the remains unchanged and no prepayments done at all, the loan continues until the end of the tenure.

On the payment of the last installment and clearing all pending dues, the loan stands closed.

 

2. Overdraft facility – LAP overdraft feature is one of the best and the most innovative developments in this space. It helps borrowers save up to 100% of the interest and pay off their loan faster without waiting for interest rates to change or having to make any prepayments at all.

This facility gives borrowers all the liberty to transfer all excess funds that are lying idle in their savings account (at low-) to their loan account (at higher ) and save on the entire sum.

It is known by different names across banks. It is popularly known as “”, “Home Saver”, “Home Credit”, “Smart HOME LOAN facility” etc. Please click here to find more details about the product.

 

3. Pre-approved loan – “Pre-approved loan” helps you check the loan eligibility before initiating the legal and valuation process and incurring major expenditure in the transaction.

 

4. Balance Transfer – The process of transferring a loan from one bank to another for better prospects and for availing various other benefits like a top-up loan facility, restructuring the loan, reducing EMI or availing better interest rate etc. is known as “Balance Transfer”.

 

5. Top-up Loan – Top-up loan is an extension of LAP which is as good as a personal loan given against the mortgaged property.

A borrower may want to renovate their house or want to go on a vacation or start a business for which he can apply for such a facility.

The money under “Top up loan” is given in the borrower’s personal savings account hence the same can be put to any personal use except using it for any of the speculative activities like gambling etc.

However, it should be noted that since this loan is an extension of LAP, it is available to existing LAP borrowers only.

 

DIFFERENCE BETWEEN BANKS AND NBFCs

Sr. No.	DESCRIPTION	BANKS	NBFCs
1.	Method of calculating interest	Daily reducing*	Monthly reducing
2.	Benchmark	Repo rate	Prime lending rate
3.	Regulatory of Governing body	Reserve Bank of India	National Housing Bank
4.	LOAN overdraft	Available	No available
5.	Cost of Funds	Low*	High*
6.	Passing on rate cuts	Proactive*	Reactive*
7.	Process timelines	Higher	Lower
8.	Flexibility	Less	More

 

 

ELIGIBILITY CRITERIA FOR LOAN AGAINST PROPERTY

All lending institutions have their defined set of eligibility criteria that they follow while sanctioning loans.

These criteria are supposed to be in line with the bank’s internal policies and regulatory guidelines.

Also, they differ from one institution to another. The following are some of the common eligibility criteria that most banks follow.

1. Age – A salaried applicant should be between 21-60 years of age. And self-employed individuals should be between 21-70 years of age.

 

2. Location – Either the property, the place of residence or the place of work should be located in the city in which the loan application is made.

 

3. Loan to Value Ratio – Generally, the maximum of 65% of the total market value of the property can be sanctioned as a loan against property.

 

4. Citizenship – A resident, as well as non-resident Indian citizens can avail this loan facility in India but not foreign nationals.

 

5. CIBIL Score and repayment history – CIBIL records should be clean and not reflect default in any of the loan repayments in the past. Also, the minimum CIBIL score should be 700 to comfortably secure a loan.

 

6. Financial and Job Stability – Changing jobs too frequently, filing 2 years ITR in the same year especially just before applying for a loan, delay in salary payments, the gap in employment, salary being paid in cash, etc. display instability and may lead to rejection of your loan application.

Also, an applicant should be a confirmed employee and in case he/she has changed the job, he/she should have received at least one salary credit from the new employer to avail the loan.

 

7. Income / Repaying Capacity – Most banks will accept the maximum of 70% of your net monthly income as your total loan repaying capacity.

It also includes all existing that you are currently paying towards other loans. Hence, having too many loans with high payments can reduce your overall loan eligibility to zero.

 

 

UNDER WHAT CIRCUMSTANCES SHOULD YOU CONSIDER TRANSFERRING YOUR LOAN BALANCE TO ANOTHER LENDER?

The following are some of the situations under which you must consider transferring your loan balance to another lender.

1. Reduce EMI to improve cash flow – In most cases, LAP EMI consumes the major portion of the borrower’s salary. Due to this, they are hardly left with any surplus to manage their cash flow and make investments towards their future financial goals.

In worst cases, some borrowers are compelled to take more loans to manage their current and future cash flow requirements leading to a debt trap. This cycle needs to be broken with smart planning.

It should be noted that on floating rate LAPs are now abolished by RBI. Hence, instead of keeping your obligation high, you can opt for maximum tenure, lower and allocate savings to manage your cash flow and .

Any surplus thereafter can be used to make voluntary prepayments every month if you wish to. This way you can not only finish your loan faster but also take complete control of your situation and reduce dependency on loans for upcoming expenses.

To make the most of it, you can get your LAP transferred to a different lender that is more customer-centric and more proactive in passing on rate benefits to their customers.

Don’t chase only better rates and processing fees. They are deceiving at times. There are a lot many .

 

2. Current lender is charging higher interest – The variations in interest rates for mortgage loan across various lending institutions is too high. The gap could be as big as more than 2% to 3%.

Also, with the abolishment of the by RBI, the transfer of loans to another lender for better rates and prospects has become a more viable option.

Hence, borrowers must keep looking for better offers across various lenders and the one with the lowest rate should be considered.

 

3. Service Issues – This is another challenge that many borrowers face with their existing lenders. Please note the fact, that no bank in India has zero dissatisfied customers. Even the best in class institutions have attritions and complaint ratios.

Hence, before you decide to switch over, please take stock of issues you have with your lender and assess whether the reason for not getting what you wanted are regulatory restrictions on the bank which remains the same across the industry or whether it is the bank’s intent and attitude towards their customers.

 

4. Availing top-up loan – Top up loans on the existing loans are like a blessing to all LAP borrowers who are facing financial crunch and need funds to bail themselves out of the financial crisis.

Top-up loans are as good as personal loans which can be used for various purposes like going on a vacation, starting a business, wedding expenses, medical emergencies, higher education, Repair/renovation/extension of existing house, etc. However, it cannot be used for any of the speculative activities like stock investing, gambling, etc.

The difference between the and is security.

Personal loans are unsecured loans hence its rate of interest is very high.

Top up loan on the other hand, is given against the same property on which the LAP is availed and hence it comes at a very low-interest rate.

The eligibility for a depends on your property valuation and income eligibility.

 

5. Availing a better product – LAP overdraft facility is gaining a lot of popularity these days for its ability to help borrowers save lacs of rupees that they lose to interest payments and using the same for making pre-payments and finishing their loan faster.

Imagine, your loan is being paid off faster without waiting for to change or having to make any pre-payments at all.

Under this facility, a LAP borrower can transfer the entire balance that is lying idle in their savings bank account to their loan account.

The number of days the money is kept in that account, the bank does not charge them any on that amount at all. This helps them save a lot of money on loss without impacting their cash flow. Click here to learn more about the product.

 

 

A PIECE OF ADVICE THAT YOU MUST CONSIDER WHILE TAKING A “LOAN AGAINST PROPERTY” (LAP)

The following are some of the suggestions that every LOAN AGAINST PROPERTY borrower can consider to protect the value of their investment.

 

THINGS YOU MUST DO

1. Know your eligibility – Every borrower must get their CIBIL report and overall income eligibility checked before initiating the loan process and incurring expenses on legal/valuation charges and loan processing fees.

Many times, banks send them intimation for rejection of their loan application after incurring all the expenses for obvious reasons that could have been known earlier.

 

2. Check the schedule of charges and other terms of the loan – Maintaining transparency and following business ethics is the least, every customer expects out of any bank or financial institutions.

Unfortunately, it is not the practice that is being followed by representatives of many banks and financial institutions.

Especially in case of technical product like LAPs, the representative you are dealing with, knowingly or unknowingly may not disclose certain hidden terms and conditions which are important for you to know.

That may come to you as a surprise at a much later stage thus; making it difficult for you to opt-out and accept it helplessly.

Hence, it is every borrower’s responsibility to understand the critical terms of the transaction like the cost involved, break up of rates being offered, products available, etc.

To ensure this, request the final offer to be sent on an email rather than accepting it verbally and read the fine prints of the final loan contract.

 

3. Always opt for maximum tenure – Gone are the days where LAP lenders used to charge their borrowers penalties for making prepayments towards their LAP where borrowers try to repay their loan faster to save interest.

If you are already living hand to mouth, don’t choke your cash flow more by keeping your high just to save .

Instead, you can opt for the lowest possible and make extra payments voluntarily each month by adding a fixed amount to your without penalty.

That way, you can still save by keeping your low without suffocating your cash flow at the same time.

 

4. Always opt for automatic payments – In this computer age, many borrowers still believe that physically walking into the bank and depositing their EMI cheque every month is the ideal way of servicing the loan and keeping their payments regular.

Such borrowers should understand the benefits of “Electronic clearing service” (ECS) where their is deducted automatically from their bank account each month.

This is not only convenient but also a much safer and a foolproof method of keeping your payments regular.

Any missed payment can result in penal , late charges and negative credit reporting which can have long term implications.

To sign up, one needs to submit a duly filled and signed NACH mandate in case they have a bank account with the bank other than the LAP provider and “Standing Instruction Form” if the savings account is with the same bank as their LAP.

 

5. Always cover a loan with a basic term insurance – Your house no longer belongs to you until your loan is paid off and the lien is released by your loan provider.

If your bank for any reason stops receiving payments, they will give you only 3 months to clear all pending dues. Post the given deadline, they will start the to recover their money by selling your property.

Imagine being in a situation where all of a sudden something happens to you and your family are left with nothing but 2 choices.

Either make arrangements to repay the loan or lose the house.

Nobody would want their families to land in this situation whatsoever. Hence, always get your loan covered with the basic .

 

6. Look beyond interest rates and low processing fees – Some borrowers with inadequate knowledge easily get carried away with attractive rates and discounts being offered by some institutions.

Their decisions are largely influenced by some temporary benefits which eventually cost them lacs of rupees that they lose towards excess payment and various other charges.

Hence, the reason for differential rates and discounted processing fees should not be ignored.

Why is that few lenders are forced to offer attractive discounts to lure customers while others are still getting a lot of customers without giving any discounts at all?

As it is precisely said, sometimes saving pennies can cost you fortune.

The difference can be the product which the other lender is offering is effective in the long run and will help you save a lot of OR they may be calculating on “” instead of “” OR their rates are linked to repo rates and many more.

All these factors are more important to have than some temporary and short term benefits that some borrowers give in to.

 

7. Always pay the missed EMI in the same month – Sometimes borrowers miss their EMI payment in a particular month due to unavoidable circumstances and genuine problems.

The borrower in this situation need not panic. Every bank understands that every missed is not out of wrong intent.

Ensure you make the payment before the end of the month as banks usually do credit reporting only 30 days after the payment due date. The late fee however could be charged but it will not have long term implications on the borrower.

 

8. Include other family members in the home loan application to boost eligibility – Adding other family members to a loan can help you boost your overall loan eligibility if they are earning.

 

9. Get expert advice from the mind your savings team – Dealing with banks directly can be misguiding many times due to a narrow approach. The bank employee you are dealing with may not be an expert in this subject.

Also, it can get very confusing for a loan applicant to decide as every banker will talk about the products and benefits that their bank is offering.

Hence, one should always look for fair advice and suggestions from the aggregators or agents who deal with multiple banks and have good knowledge about the domain.

They are the experts in this field and are in a much better position to share insights that can help you make an informed decision.

 

 

THINGS YOU MUST AVOID DOING

1. Don’t blow all your money on EMI. Keep room for investments – Do not get over-enthusiastic in an attempt to pay off your loan faster and end up ruining your other financial commitments by opting for low tenure and high EMI. It is a one-way street and you may not be able to change that later.

A mortgage loan is a long term commitment, hence ignoring any future cash requirements or uncertainties can put you in a compromising situation later. The strategy should be such that it should always keep you in control of your finances.

Paying more voluntarily works out better than paying more out of obligation. Hence, it is always advisable to keep your low thus leaving enough room for as well. Create reserves for contingency funds and other expected expenses otherwise, you may end up taking another loan later. Anything left can be prepaid without penalties.

 

2. Avoid including your company in property loans – This applies to self employed individuals who own their business. Banks often try to convince and insist such individuals to have their company included in the loan to enhance their loan eligibility and avail some more benefits.

Doing so can often do more harm than good to such individuals.

It should be noted that the is abolished only on floating rate loans taken by individuals only. For any reason, if the company is included in the loan, the borrower then becomes liable to pay a penalty either for prematurely closing the loan or for transferring it to some other lender for better prospects.

In such cases, banks can often take advantage and refuse to lower your rates knowing that transferring the loan will be the last option you will resort to given the that goes up to 2% to 4% of your loan outstanding balance. Hence, avoid including the company in property loans unless really required.

 

3. Don’t put an application with multiple banks – Every bank report loan inquiries to credit bureaus. Hence, making multiple applications with different banks may not only raise questions for doing so and impact your credit rating but may also cost you more on processing charges.

 

4. Don’t make over commitments to anyone by blindly trusting bank timelines – Mortgage loan sanction is a result of multiple processes like pre-sanction, legal check, valuation, home/office and site verifications and final processing.

Loan approval is subject to delays and rejections due to various reasons at any of these stages. Many times, due to the high volume of loan applications and bank internal challenges, delay in processing is inevitable which the applicant or a bank may not be able to foresee.

Hence, one should always be mindful of all these factors before making any commitments to any party on timelines.

 

5. Prefer borrowing from banks with a good market reputation – Applicants with a sound profile and good credit history are mostly eligible to avail loan from any institution of their choice.

Hence, they should prefer taking loans from reputed financial institutions as such institutions are more competitive and stable in the long run.

Many small scale banks and financial institutions on the other hand have a higher rate of .

Moreover, they lack stability in the long run as they offer loans to borrowers with low creditworthiness and weak profile which drive their NPAs to worse and eventually put pressure on their existing portfolio of borrowers.

 

7. Don’t submit the file with incomplete documentation – This is one of the most common reasons why your loan process gets delayed and in worse cases comes to a halt.

Documents checklist is more or less remains common across all banks and all applicants are expected to hand over all documents in one go as per the checklist provided.

Any deviation in the whole process can prevent the loan processing officer from giving their clear opinion about your proposal to sanction the loan.

Hence, being systematic with paperwork will not only save you time but also save inconvenience caused to many parties involved.

 

8. Never let your processing fee bounce – Cheque bounce is a very critical offence whether it is involving your loan processing fees or any other transaction.

Do not stop payment of processing fees or for any reason without informing your banker even if your loan gets rejected.

Doing so may get you blacklisted by the bank for unethical behaviour and cause permanent damage to your .

 

9. Choose to reduce the EMI instead of tenure after part payment – We continue to highlight that making extra payment out of choice always works out better than paying out of obligation.

LAP borrowers cannot undo certain actions later. They have to be planned at the time of taking the loan.

Keeping the LAP low will not only help you release pressure on your monthly cash flow but also in future financial life. If you still want to prepay, you can do that voluntarily without any financial impact.

The savings can either be used towards making prepayments of the loan or .

Hence, repaying the loan faster at the cost of other benefits makes very little sense as the LAP is one of the cheapest personal loans available and can contribute a lot to your overall .

 

 

REASONS FOR REJECTION OF LOAN AGAINST PROPERTY (LAP) APPLICATIONS

The following are some of the reasons due to which your loan application can get rejected.

1. Poor Credit Records – Banks and financial institutions always seek customers who are not only eligible to get a loan but also have the right intent to pay it back with interest.

Hence, all lending institutions rely heavily on reports which they receive from credit bureaus like Equifax and Transunion.

A CIBIL report contains the repayment track record of the payment behaviour and loan repayment patterns of all individuals who have taken a loan or some credit facility from any of the RBI registered lending institutions at some point in their life.

Any default in their loan repayments in the past is reported and can straight away get them rejected for the loan they apply for in the future.

 

2. Insufficient Valuation – Banks usually give loans up to a certain percentage of their total property valuation. If the property valuation is not enough, the loan amount will either be reduced or rejected as the case may be.

 

3. Being a guarantor for someone else’s loan – Sometimes, borrowers become guarantors to help their friends and family members secure loans, unaware that such guarantees can affect their overall loan eligibility and reduce their own borrowing capacity.

Being a is as good as being the applicant of the loan. They are reported as a to and the liability of the borrower in case of default becomes the liability of the .

Hence, if a applies for a loan, he needs to obtain the 1-year loan account statement and bank statement of the borrower reflecting payments to prove that the payments are being made by the loan applicant only.

 

4. Income / Repaying Capacity – Most banks will accept the maximum of 70% of your net monthly income as your total loan repaying capacity.

It also includes all existing s that you are currently paying towards other loans. Hence, having too many loans with high payments can reduce your overall loan eligibility to zero.

 

5. Improper personal and property documents – KYC, financial documents and property-related documents are the basic set of documents that banks require to check the eligibility and sanction the loan.

Any shortfall or irregularities in any of these documents can lead to a rejection of a loan on this ground.

 

6. Blacklisted area or builder– Many locations and builders are blacklisted by many banks and lending institutions due to their poor track record and many other reasons.

If a property or a place of residence of the applicant is located in any of those areas then they are least likely to get the loan from these lending institutions.

 

7. Financial irregularities and job instability – Changing jobs too frequently, having 2 years ITR filed in the same year, having cash income, delay in salary payments, no availability of ITR, having a gap in service displays instability and may lead to rejection of your loan application.

 

8. The physical condition of the property – Banks usually conduct a structural audit on all properties older than 12 years and loan tenure is determined basis the life of the building. If the property is too old and found to be in a dilapidated condition, your loan is likely to be rejected.

 

9. Customer profile and dependants – Apart from assessing income and property valuation, banks also give utmost importance to personal discussion where they try to understand the applicant’s lifestyle and saving habits.

Having limited income with too many dependants, having liabilities higher than assets, bad saving habits etc. can make banks uncomfortable to lend and call for explanations and assurance on repaying the loan.

However, if they are not satisfied with the responses given, they can put a negative mark in their report which can lead to rejection of your loan application.

In some cases, banks can insist on having a and sanction the loan.

 

10. Cheque bounces – Cheques bounces are looked at very seriously and even a couple of instances can lead to rejection of loan application unless justified by the applicant with proof to the bank’s satisfaction.

 

11. Non-availability of Succession Certificate – While purchasing a property, a borrower may come across a situation where one of the property owners has passed away.

In such cases, most buyers still execute the agreement by making all of the deceased’s as confirming party to rule out any legal claim in the future.

In the entire process, one should understand the risks involved in such transactions.

First of all, the number of legal heir is rarely confirmed. Even if they are confirmed, there is a possibility that the deceased must have made a “Will” in favour of the 3^rd party individual which the borrower may not be aware of.

Hence, the buyer should always insist on obtaining the “Succession Certificate” and attach a copy of the same in the "Sale Agreement" to rule out any possibility of legal claim in the future.

Most banks with strong and strict due diligence guidelines will refuse to accept such property as collateral and refuse the loan.

 

12. Unregistered or incomplete chain agreements – From 10^th December 1985 onwards, all agreements related to the sale of immovable properties should be compulsorily registered with the payment of stamp duty.

If any of the chain agreements after that period are found unregistered, your loan is most likely to get rejected.

However, some financial institutions still do loans on such properties based on the but that is unsafe.

 

13. Unavailability of building Occupancy Certificate – “Occupation Certificate” (OC) is issued by the local municipal corporation under whose jurisdiction the building is being constructed.

It is an approval certifying that the said building or a project is constructed in compliance with the structural plan approved by the local municipal corporation and the building is fit to occupy.

OC is a must-have document without which the safety of the building is questionable and illegal.

Hence, buyers should always ask the developer for the reason for the non-availability of as most of the banks will deny loans without .

 

 

HOW TO SELECT A GOOD “LOAN AGAINST PROPERTY” (LAP) LENDER?

Selecting a MORTGAGE LOAN lender only on the basis of lower interest rate and discounted processing fees can be deceiving. It is quite possible that due to this narrow approach, you may face problems and end up paying much more than what you have imagined.

Hence, every loan applicant must make their loan selection process subjective based on the following parameters.

1. Bank Policies – Different lenders have a defined set of criteria for sanctioning loans. For eg. Some lenders do not give loans to siblings, property not having OC, unregistered Agreement for Sale, etc.

Hence, an applicant should discuss their specific requirements in detail with their banker before submitting the to them to avoid a waste of time, money and energy.

 

2. Rate of Interest – An applicant must choose a lender offering the lowest rate of interest. However, the lower rate should not come at the cost of important benefits.

To make the most of your planning, you should look for the bank that charges instead of .

The should be linked to with the lowest .

An overdraft facility should be preferred over term loans and many more.

 

3. Processing Charges – Processing fees is one of the important factors that should be considered while applying for a loan. However, other benefits as mentioned above should not be ignored.

 

4. Benchmark Rate – Benchmark rates are used by all lending institutions which are one of the important determinants of the interest rate they offer.

Lower the benchmark rate, better it is for borrowers in the long run. Some lenders offer lower rates despite having a high and should be avoided. And the bank with a lower should be preferred.

 

5. Products – Applicants should enquire about all LAP products available in the market and understand the pros and cons involved.

Certain products come at a higher rate of and look expensive but the savings they offer can be much more than what the regular product at a lower rate would have offered.

Also, there are products under which you can avail of a higher loan amount than your regular eligibility.

 

6. Range of Tenure – Different banks offer different range of tenure. The maximum tenure being offered by a few banks is 15 years up to a maximum of 70 years of age should be preferred.

 

7. Pre Payment Penalty – Before you opt for the fixed rate of interest, check on the prepayment penalty involved. Prepayment penalty is waived for floating rate LAPs only.

 

 

BENEFITS OF TAKING A LOAN AGAINST PROPERTY

The following are some of the most useful benefits of availing a LOAN AGAINST PROPERTY facility.

1. Lower Rate of Interest – Mortgage loan is the cheapest personal loan available after a home loan top-up loan.

Individuals who are facing financial crunch and need funds to bail themselves out of the financial difficulties can use this facility at a very reasonable cost.

Mortgage loans are as good as which can be used for various purposes like going on a vacation, starting a business, wedding expenses, medical emergencies, higher education, Repair/renovation/extension of existing house. However, it cannot be used for speculative activities like stock investing, gambling, etc.

The difference between mortgage loans and are security and the rate of .

Personal loans are unsecured loans hence its rate of interest is very high. A mortgage loan on the other hand is given against the property and hence it comes at a very low-interest rate.

 

2. Longer Tenure – Unlike personal loans, LAP offers the tenure of up to 15 years.

Higher the tenure, lower the EMI. This in turn helps borrowers keep their monthly obligation low to better manage their cash flow.

Any surplus can either be used for making prepayments, or .

 

3. Helps improve credit score – Making timely payments of LAP EMI helps improve your credit score. In case, someone has a low CIBIL score due to bad credit history in the past can benefit from this facility as availing a LAP is easier than having a personal loan since LAP is a secured loan backed by the security or collateral.

 

4. Taking advantage of SMART LAP – As discussed above, a LAP is the cheapest loan available. To top it up, the LAP overdraft facility can further help you reduce interest outgo.

Borrowers can even roll their monthly salary or emergency funds and surplus cash into this account and earn attractive out of it.

 

5. Top-up loan – Top-up loan has come to the rescue of many borrowers facing financial crisis.

This facility is extended to LAP and borrowers only.

Top-up loan is the cheapest loan available for personal use. Moreover, this option prevails until the loan is fully paid off.

The eligibility for a depends on your property valuation and to net income ratio.

 

 

DISADVANTAGES OF “LOAN AGAINST PROPERTY” (LAP) OVER HOME LOAN

The following are some of the most common differences between the LAP and the home loan.

1. No Tax Benefit – Unlike a home loan, loan against property does not offer tax benefits.

 

2. Low Tenure – Home loan is available for as long as 30 years whereas loan against property is generally available until 15 years only.

 

3. Higher Rate of Interest – Since loan against property is meant for personal use and not for buying the house unlike home loan, its rate of interest as compared to home loan is high.

 

 

COST INVOLVED IN AVAILING A LOAN AGAINST PROPERTY FACILITY

The following is the schedule of charges that you are likely to incur for availing a LOAN AGAINST PROPERTY facility.

PRE-SANCTION CHARGES

1. Processing Fees – Processing fees are upfront fees that banks charge for processing the loan. The amount differs from bank to bank and ranges from to 0.75% to 2% of the loan amount.

 

2. Legal Fees – Fees charged by bank advocates for assessing the property credentials and issuing reports. The amount ranges from 4,000/- to 6,000/-.

 

3. Valuation Charges – Fees charged by valuers for conducting a valuation of the property. The amount ranges from 1,500/- to 20,000/- depending on the size and valuation of the property.

 

4. Structural audit – If the property is older than 12 years, the bank usually conducts a structural audit to verify the residual life of the building and accordingly sanction the loan.

 

POST-SANCTION CHARGES

1. Franking Charges – It is a government tax and the amount is 0.30% of the sanctioned loan amount.

 

2. Notice of Intimation – This is for noting the charge with the registrar office. The amount is ₹15,000/-.

 

3. Property Insurance – Property insurance is made mandatory by some banks and the premium is usually charged once during the life of the loan.

 

4. Cersai Charges – This is also a kind of tax which is as low as 118/- only.

 

 

POST-DISBURSEMENT CHARGES

1. Interest Payments – This is interest charged on outstanding loans as a part of EMI.

 

2. Penal Interest and late payment fee – This is the penalty for being late on making EMI payments.

 

3. Prepayment Penalty – This is a penalty that bank charges for making pre-payments on fixed-rate loans.

 

4. Conversion Fee – Borrowers can request their bank to adjust their interest rates in line with current market rates by paying a conversion fee. The amount ranges from 5,000/- to 10,000/- plus taxes.

 

5. Admin Charges – These are additional charges for providing certain administrative services like issuing a List of Documents, duplicate account statements, providing a copy of original title documents, etc.

 

 

BASIC INSTRUCTIONS TO ALL THE “LOAN AGAINST PROPERTY” (LAP) BORROWERS

WHAT TO DO AFTER THE LOAN DISBURSEMENT?

The following are some of the instructions that all the LOAN AGAINST PROPERTY (LAP) borrowers must follow immediately after they get their loan disbursed.

1. Preserve your original “Sanction Letter” – A “Sanction Letter” specifies all the terms and conditions of your loan contract and is an important document for future reference purposes.

 

2. Get your net banking facility activated – These days with the development of digital platforms, most of the loan related information, availing certain services and obtaining documents like loan account statement, making transactions from overdraft account, viewing updated loan terms like rate of interest, balance amount and tenure, etc. are easily accessible online. Hence, signing up for this facility can help borrowers track their details at ease.

 

3. Request for “List of Documents” from your lender – “List of documents” is a letter that is issued by your loan provider as a proof that they have collected all original property documents from you and preserved it in their custody.

It is most commonly known as “LOD”.

It is a mandatory document to have when you transfer your loan balance to another lender.

Also, it can come really handy to cross verify the documents that you receive from your lender after paying off the loan. In case, any document is found missing, you can hold your lender accountable for the same.

Your lender may or may not give you this document proactively. Hence, it is then your responsibility to ask for “LOD” at the time of submitting all the to the bank and check whether all documents are mentioned correctly with dates and document number.

Original documents consist of your original chain agreement, original share certificate, NOC, payment receipts, possession letter, etc.

 

4. Request a copy of the Amortization Schedule from your lender – “Amortization Schedule” gives you the detailed summary with a break-up of all future installments that you will pay until the end of the loan. It shows the allocation of principal and interest from the EMI payment month on month.

Hence, for a 20 years loan, a borrower can get a fair idea on how much his loan outstanding will be after a specific period and out of 240 how much will be allocated towards the principal and the each month.

 

5. Keep a record of Post Dated Cheques – You may have to provide 8 to 10 post-dated cheques (PDC) or undated cheques (UDC) to your loan provider at the time of loan disbursement. These cheques are security cheques that your lender will insist on.

In case, the borrower stops making payment, these cheques will be used and sent for clearing. If dishonoured, the bank can take legal action against the borrower since cheque bounce is a legal offence.

Please keep a record of all such cheques as you may want them back after closing the loan. You can either insist the bank give a letter specifying the details of these cheques or simply preserve the copy of the counterfoil which is attached to the front or the back of the cheque book.

 

 

WHAT TO DO AFTER THE LOAN IS PAID OFF?

The following are some of the instructions that all the LOAN AGAINST PROPERTY borrowers must follow immediately after they pay off their loan.

1. Collect all original documents and “Title Deeds” – While visiting the bank for collecting all original title deeds, do carry the original “List of documents” to cross verify the documents with the details mentioned in the “LOD”. In case it is found that the bank has misplaced any of the documents, then they should be held accountable for the same.

 

2. Obtain original “No Dues Letter” – “No dues letter” also known as “NOC” is a letter issued by the bank confirming that all the pending dues are cleared, the loan is closed and the lien on the said property is released.

It is an important document to preserve for future reference and will be very useful in case of a dispute for incorrect credit reporting. If these documents are difficult to maintain then keep a scanned copy in your digital folder or email.

 

3. Collect all Post-dated cheques – You must have given few blank cheques or post-dated cheques also known as “PDC” at the time of availing the loan which will not be mentioned in the “LOD”. Please remember to collect all unused cheques to avoid any fraud in the future.

 

4 Check CIBIL records – In some cases, it is observed, that despite paying off the loan, the bank has missed out reporting your loan as “Closed” to the credit bureau or erroneously misreported it as “Settled” or “Written off” which may dampen your credit score and further delay may cause irreparable damage to your credit history.

Hence, it is of utmost importance to check your report only on www.CIBIL.com 45 days after the loan closure date.

 

5. Get the charge released from Cersai – As we already discussed, the bank at the time of loan disbursement collects 118/- as cersai charges to mark a lien with cersai. On the closure of the loan, the same needs to be released and acknowledgment of the same should be kept in record.