Loan against property or LAP renders access to immediate funds by placing property whether residential or non-residential with a clear title as collateral with a financing institution. For banks, LAP is a secured home loan as they get the property or home as collateral security.
Also referred to as home equity loans, such loans are funded by private banks, public banks and even housing finance companies (HFCs). Generally, most banks extend up to 60% of the market value of the property as a loan. Though, the amount of loan to be paid against a particular property will be based on the banker’s policy. Moreover, such a loan can be obtained with no restriction on end-usage, i.e. the borrower can take it for several purposes such as marriage, a child’s higher education or home renovation, expand business etc.
Eligibility for LAP
The eligibility for a home equity loan or a loan against property is determined based on the current market value of the property, which is less any amount the proposed borrowers owe on it. The interest rate on such loan type usually is higher than plain-vanilla home loans although considerably cheaper than other loan categories such as credit card loan or personal loan. Being a high-ticket size loan, which gives large sums of money as high as Rs. 50 crores, this loan offering begins with longer repayment tenure of up to 15-20 years. Specialists advise going by a longer tenure to reduce monthly EMI amount as well as diminish chances of default.
Required documents to avail home loan Self-employed as well as a salaried class is eligible to avail LAP or home equity loans. Below mention is the list of documents to be produced to secure such a loan:
- Proof of identity
- Address proof
- For salaried class- Pay slip of the last six months is to be furnished while self-employed individuals need to give P&L statement and balance sheet for two years
- Income tax return of 3 years
- Bank statement for last six months along with duly filled in application form for a loan against property
In respect of the property, the following documents are to be submitted:
- Registration deed
- Completion certificate
- Occupancy certificate
- Building approval plan
- Latest property tax payment receipt
- Valuation certificate from the approved value
Conditions of loan disbursal
The bank can disburse the loan against property as either lump sum amount or in parts as per the need of the borrower. The EMI on loan becomes due every month and depending on the liquidity, and borrower should try to pre-pay the principal amount from the first year of the loan itself as prepaying at a succeeding date will not save much concerning interest. There are no pre-payment costs levied on floating loan for salaried professionals; however, the same can be charged from other categories of individual borrowers including HUFs and companies. Although, pre-payment or foreclosure of the loan should be done after taking a close look at the concerned lender’s pre-payment and foreclosure charges. At least a minimum of two months of home loan equity EMI is to be serviced for pre-payment. An increasing or stepping up in the loan EMI during the loan tenure will go a long way in assuring that the loan is paid-out rather early as well as can mainly diminish interest costs for the borrower.
No any tax benefits on LAP repayment
In contrast to the usual home loan that comes with a tax break of up to Rs. 2 lakh per year on interest payment and Rs. 1.5 lakh concerning principal repayment, LAP repayment does not render a borrower with any tax benefit. But, the ease of disbursal of such a loan makes it a favoured choice when seeking large sums of funds.