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A Loan Against Property (LAP) is a type of loan that a borrower can secure. In this case, the borrower must pledge their property as collateral or security. These schemes are also known as mortgage loans. These loans have annual interest rates ranging from 14% to 16%. Another distinguishing feature of a LAP is the ability to obtain large sums, typically in the tens of lakhs or even crores.
Loan Against Property (LAP) – Key Features & Benefits
Applicants seeking a LAP must meet certain eligibility requirements, which are outlined below.
Age
An Indian citizen with a minimum age of 25 and a maximum age of 75.
Employment Status
Self-employed and have a steady source of income. Salaried people are not eligible for a loan against their property.
Business Status
Applicant must have been in business for at least three years.
Loan Maximum Term
Tenure is flexible up to ten years. Payment terms will not be extended after the borrower retires or reaches the age of 60.
Monthly Earnings
There is no such thing as a fixed monthly income.
Loan Against Property Features
Lower interest rate: Secured loans typically have lower interest rates than unsecured loans. Furthermore, having a good credit score and credit history increases your chances of getting a loan with a low interest rate.
Simple documentation and approval process: The documentation and approval process for a loan against a property is generally simple. In this case, the collateral is the property used to secure the loan. This allows lenders to proceed with a straightforward documentation process.
Loan repayment flexibility: Most loans secured by real estate have a loan repayment term that is flexible. You may be able to obtain a loan repayment term of up to 20 years depending on the lender you choose.
Continuous ownership of the property: The borrower retains ownership of the property in the case of a loan against property. When you offer your property as collateral for a loan, you retain ownership of it. This also allows you to sell the property if you are unable to repay the loan.
Option for pre-closure: If you want, you can pre-close your loan against the property. If the loan you obtained has a variable interest rate, there will be no penalties for pre-closing the loan. You will be required to pay a small amount if your loan has a fixed interest rate.
Optimal property utilization: If you get a loan and have a property as collateral, you will be able to meet your financial needs with a loan amount equal to the property’s value. You will be able to keep your property at the same time. You can choose not to sell your property and still receive sufficient funds to meet your needs at a low interest rate.
How can you avail Tax benefits from LAP?
How to Get a Loan Against Property at a Low Interest Rate
Here are some pointers to help you get a loan against your property at a lower interest rate:
- Build and keep a credit score of 750 or higher.
- First, contact the lenders with whom you have deposit and/or loan accounts.
- Keep track of interest rate reductions during the holiday season.
- Visit online financial marketplaces to compare loan offers from various lenders.
How does Loan Against Property (LAP) Interest Rate Work
Fixed Interest Rate – This means you pay the same interest rate for the duration of your loan repayment. The EMI remains constant throughout the loan term.
Floating Interest Rate – An interest rate that changes in response to market conditions. The EMI fluctuates in tandem with the interest rate. The interest rate is calculated using a base rate or index rate set by the RBI. As a result, when the base rate rises, so does the floating rate, and vice versa.
How is your Loan Against Property (LAP) Loan Interest Rate Determined?
Credit Score -Your credit score is critical in determining the interest rate on your LAP. A low credit score is associated with higher interest rates. As a result, keeping a good credit score is recommended in order to obtain a mortgage loan with a lower interest rate.
Loan Term – LAP loans have a maximum term of 10 years. As a result, the interest rate falls with time. Longer-term LAPs, on the other hand, have a lower interest rate.
Property type – The value of different types of property varies. Commercial real estate is typically more expensive than residential property. As a result, a commercial property may command a low interest rate, whereas a residential property may command a high interest rate.
Applicant Profile -Age, income, occupation, residence, and other factors influence your LAP interest rate.
Tips to Avail Mortgage Loan at Low Interest Rates
Here are some pointers to help you get a loan against your property at a lower interest rate:
- Build and keep a credit score of 750 or higher.
- First, contact the lenders with whom you have deposit and/or loan accounts.
- Keep track of interest rate reductions during the holiday season.
- Visit online financial marketplaces to compare loan offers from various lenders.
Factors affecting loan Against Property Interest Rates
Credit score: Because a high credit score reflects responsible credit behavior and financial discipline, many lenders offer mortgage loans at lower interest rates to applicants with higher credit scores.
The loan amount: Many banks and HFCs base mortgage loan interest rates on loan slabs. Loans against property up to Rs 30 lakh typically have lower interest rates than larger amounts.
Property type: Some lenders offer lower interest rates for self-occupied residential properties than for commercial properties or properties that are not self-occupied.
Women applicants: Many lenders offer a 0.05% interest rate reduction to female borrowers. As a result, enlisting a female family member as a co-applicant can assist in obtaining a lower interest rate.
LTV Ratio: The Loan to Value Ratio (LTV) is the percentage of the property value that you can borrow against. The homebuyer must contribute the remaining value of the property from his own funds. Lenders typically offer up to 70% of the property’s value as the maximum loan amount on a loan against property. Borrowing less reduces the loan-to-value ratio, improves loan eligibility, and lowers interest rates. It should be noted that LTV ratios vary depending on the type of property.
Income and employment: When determining interest rates, lenders consider your income, type of employment, and employer profile. Because salaried applicants have more job/income certainty, lenders typically offer lower interest rates. Applicants who are self-employed with irregular income streams or an unstable job profile, or who have just begun their professional journey, face higher interest rates.
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