A Loan Against Property or LAP is a loan which is taken while mortgaging one’s owned and occupied immovable residential or commercial property or residential property given on rent. One may opt for this loan over a personal loan to meet sudden and temporary large expenses, such as a medical procedure, education, wedding expenses, travel, etc., or for debt consolidation of any unsecured loan.
What are the main benefits of an LAP? Let us understand them below:
- It is a secured loan. Thus, one can avail it at a much lower interest rate as compared to a personal loan or any top up loan or business loan.
- The freedom to continue to occupy the mortgaged property remains with the owner.
- An LAP has a much longer tenor at a lower interest rate than a personal loan which makes the EMI burden on the borrower easier.
- There is no restriction on how the loan money can be used, thereby giving the borrower the freedom to use it for multiple necessities.
- There are also special category LAPs like LAPs for doctors to upgrade their clinics, CAs to expand their business, LAP for education, etc. However, one must know that each might have its own interest rate depending upon the lender, the borrower’s profile, and the purpose of the loan.
If you are seeking a Loan Against Property, apprise yourself with the list of documents a lender would generally ask for:
- Your identity and address proofs, such as PAN, Aadhar, passport, driver’s license, voter’s ID card, and so on.
- Relevant property documents, such as sale deed, ownership deed, municipal corporation tax receipts, registration certificate, lease agreement, insurance, etc.
- Your income statements, salary slips, IT returns, bank statements for six months to up to three years.
How is one’s eligibility for a Loan Against Property determined? Let us understand the factors that affect the Loan Against Property EMI calculator:
1.Credit or CIBIL score of the applicant, which is determined by their debt and repayment history, defaults (if at all), discipline in payment of credit card outstanding dues (in full, on time), past or existing loan/EMI repayments, and so on. A score of 700 or above is recommended for an LAP.
- Age of the applicant is of importance as these loan tenors tend to be from mid to long term. Therefore, the younger the borrower, the longer is their work years remaining and better are their odds of income appreciation and loan repayment.
Other factors related to the age of the borrower which matter are the number of dependents on the borrower, family size, any other earning member in the family, and educational qualification.
- Personal income and its degree of stability impact one’s LAP eligibility sum and Loan Against Property interest rate. Intuitively as well, higher the income and/or the more stable the income, better is the eligibility. Also, the type of job/occupation is of significance. An individual with an MNC or a government job is touted to be more eligible in comparison to anyone else. A self-employed person with a long history of running a successful venture is also eligible.
- One’s assets and investment portfolio with its degree of risks affects LAP eligibility. It is recommended to invest in more stable and less risky options like PPF, government bonds, debt funds, instead of riskier products like equity. Even in equity, large cap is better than mid cap which is better than small cap. A more diversified investment portfolio assures the lender of the income spread and sources and improves the eligibility of the borrower.
- Also, the marketability and commercial value of the property being used as a collateral has direct impact on one’s LAP eligibility. It affects the quantum of the loan sanctioned. The higher the current valuation of the mortgage, the greater will be the borrower’s LAP eligibility. The valuation of the property is influenced by its location, size, age, etc. As a norm, lenders approve of a loan sum equivalent to up to 60% of the current market value of the mortgaged property.
Based on the above mentioned documents and the parameters influencing one’s LAP eligibility, the lender evaluates the application and processes the same. Every applicant is advised to personally analyse the LTV ratio or Loan to Value ratio based on which the lender approves the loan sum to be disbursed. This value differs by lender depending on their evaluation of the collateral. Herein lies the opportunity to negotiate with the lender for a better rate of interest assuming one has a high CIBIL score, stable income trends, a saleable property being mortgaged, and maintains general financial hygiene.