Loan against Property , more popularly referred to as LAP, is a loan which you can take against the value of your house. A significant portion of our net worth is in the form of the house we live in, but rarely it is liquidated. LAP gives you an option to unlock that part of your net worth to leverage your borrowing power. Even if you take a loan against your home, the ownership of the property remains with you, and incase of events taking an unfortunate turn, the property can be sold to repay the loan. LAP is usually taken to start a new venture or expand it. It is also a good way to reduce the higher cost borrowings, as LAP being a secured lending comes at a lower cost.
- The amount that can be borrowed on three parameters; Profile of the borrower; Valuation of the Property & Income capacity of the borrower to repay the loan.
- Banks charge different rates for LAP but usually it is 0.75-1.50% higher than the existing Home Loan rates.
- Banks lend keeping a Loan to Value (LTV) ratio of 50%-70%, which means you can borrow upto 50% to 70% of the value of the said property. The LTV also varies depending on whether the property is Residential or Commercial or Industrial.
- The maximum loan tenure is 15 years.
- Banks usually keep a maximum age limit of eligibility of 60 years for salaried and 65 years for self-employed, with certain exceptions.
- Lenders charge a processing fee which varies from 0.5% to 3.00% of the loan amount which is to be paid partially upfront as login fees and balance after sanction. This fee structure is highly negotiable.
Before availing the loan, please check:
- Tenure of the loan plays an important role in deciding the loan. The increase in tenure will significantly lower the EMI, though it ultimately results in paying much higher interest over a longer period.
- Always check the pre-payment conditions. Most banks will have a standard pre-payment penalty clause but you can get it waived off after the loan is certain years old.
- Work out your cashflows diligently. Any default in EMI reflect badly on your credit history and may make it difficult for you to get another loan in the future.
- Sanction letter issued by the Lender should be on the letter head of the bank with details such as Rate of interest, Floating or fixed rate loan, processing fees, pre-payment charges, tenure, interest-schedule and any other waiver you got not he loan.
- Pre-payment charges are also negotiable. Lenders usually keep a lock-in of some months after which they agree to waive the pre-payment charges. All this should be taken in black&white at the time of sanction only.