Loan against property or LAP provides access to immediate funds by placing property whether residential or non-residential with clear title as collateral with a financing institution. For banks, LAP is a secured loan as they get the property or home as a collateral security.
Also referred as home equity loans, such loans are financed by private, public banks and even housing finance companies (HFCs). In a general case, most banks extend up to 60% of the market value of the property as loan. However, the final say and the amount of loan to be disbursed against a particular property will be based on the lender's policy.
It is to be noted that such a loan can be availed with no restriction on end-usage i.e. the borrower can take it for various purposes such as child's higher education, marriage or for home renovation, expand business etc.
Eligibility for LAP
The eligibility for loan against property or home equity loan is determined based on the prevailing market value of the property less any amount the prospective borrowers owes on it.
Interest rate on such loan type is usually higher than plain-vanilla home loans but substantially cheaper than other loan categories such as personal loan or credit card loan. Being a high-ticket size loan which offers large sums of money as high as Rs. 50 crore, this loan offering comes with longer repayment tenure of up to 15-20 years. Experts suggest going by a longer tenure to lessen monthly EMI amount as well as reduce chances of default.
Required documents to avail home loan
Self employed as well as salaried class is eligible to avail LAP or home equity loans. Below is specified the list of documents to be produced to secure such a loan:
• Proof of identity
• Address proof'
• For salaried class- Salary slip of last six months is to be furnished while self employed individuals need to give balance sheet and P&L statement for 2 years
• Income tax return of 3 years
• Bank statement for last 6 months along with duly filled in application form for loan against property
In respect of the property, following documents are to be submitted:
• Registration deed
• Completion certificate
• Valuation certificate from the approved value
• Latest property tax payment receipt
• Occupancy certificate
• Building approval plan
Conditions of loan disbursal
The loan against property can be disbursed by the bank as either lump sum amount or in parts as per the need of the borrower. The EMI on the loan becomes due every month and depending on the liquidity, borrower should attempt to pre-pay the principal amount from the first year of loan itself as prepaying at a later date will not save much in terms of interest.
There are no pre-payment charges levied on floating loan for salaried professionals but the same can be charged from other categories of borrowers including HUFs and companies. Nonetheless, pre-payment or foreclosure of the loan shoule be done after taking a close look at the concerned lender's pre-payment and foreclosure charges.
At least a minimum of two month of home loan equity EMI is to be serviced for pre-payment.
Stepping up or increasing the loan EMI during the course of the loan tenure will go a long way in ensuring that the loan is paid-out rather early as well as can substantially reduce interest outgo for the borrower.
No tax benefits on LAP repayment
In contrast to usual home loan that comes with tax break of up to Rs. 2 lakh per year on interest payment and Rs. 1.5 lakh in respect of principal repayment, LAP repayment does not provides borrower any tax benefit. Nonetheless, the ease of disbursal of such a loan makes it a preferred choice when seeking large sums of money.