One of the safest and most popular types of loan among borrowers is Loan Against Property (LAP), also known as mortgage loan. It is one of the secured loan options, allowing borrowers to keep their commercial or residential property as collateral. Here, if the borrower is not able to repay the loan with interest within the allotted time, he loses ownership of the asset.
A loan against property (LAP) allows an individual to operate a real estate asset to acquire financing for personal or business needs without losing ownership of the property. This makes LAP a popular loan option for financing large loans or addressing cash flow imbalances, especially among home owners.
Factors that affect LAP interest rates
Depending on the lender and their assessment of the risks associated with the borrower’s credit profile, as well as the location and condition of the property in question, mortgage interest rates can vary by 8.35% * at 13.2% * per year. LAP interest rates may also differ depending on the loan amount and the term chosen by the borrower.
- Understanding the CIBIL score
The CIBIL or credit score is important in establishing mortgage eligibility and determining mortgage interest rates. A high credit score of 750 to 900 implies a high level of creditworthiness. When it comes to getting the highest interest rates on loans, a credit score of 750 or higher is best.
From the lender’s perspective, a low CIBIL score, on the other hand, identifies the applicant as a high-risk borrower. As a result, a higher interest rate can be offered to the borrower. In addition, if the credit score is much lower than the recommended level, the loan application may be refused.
It is also important to note that lenders typically offer up to 70-75% of the market value of the property as a loan against the applicant’s property, depending on the applicant’s repayment capacity, income and income. the property to be mortgaged, among other factors. Applicants must determine the market value of a property, as lenders analyze various factors such as the location and age of the property, as well as the surrounding infrastructure.
- Applicant Profile
The borrower’s or applicant’s portfolio, including age, occupation, residence and monthly income, can affect the loan relative to the real estate interest rate. An older candidate who is only a few years away from retirement, for example, will be given a shorter tenor, resulting in higher IMEs. A person with less than ideal income will also be charged higher interest rates for a home loan.
- The property in question
The mortgage interest rate is of course influenced by the property to be mortgaged. This implies that the lender will assess the nature of the property – commercial or residential – as well as its age, location, value, and general condition.
Residential and commercial buildings, for example, are valued differently and therefore have varying interest rates. Also, compared to an old and run down building, an expensive house in excellent condition and in a prime location will result in lower loan rates.
Advantages of LAP
- Fast processing
It can take up to three weeks for a loan to be disbursed against a property, as lenders assess all documents related to the property and conduct a technical study to establish the ownership and market value of the property before disbursing the loan. However, some top lenders offer incredibly short turnaround times which make LAP ideal for urgent financial needs. For example, some lenders even offer disbursement within 72 hours of submitting all the necessary documents.
- Substantial savings in interest
Compared to other unsecured forms of financing, such as a personal loan, a home loan carries a relatively low interest rate. In other words, you have access to substantial financing at a reasonable cost.
Considering this, the home loan is an ideal solution for debt consolidation. An LAP can be used to repay other smaller, higher interest loans and repay the full amount at a nominal price. loan against real estate interest rate.
- Comfortable repayment tenor
Most lenders provide loans against a property repayment term of up to 18 years, which is significantly longer than other loan options such as gold loans, personal loans, and supplemental home loans. The repayment period for a gold loan can be up to three years, while a top-up home loan can be up to the remaining term of the underlying home loan. Personal loans generally have a shorter term, ranging from one to ten years for most lenders.
A shorter repayment term means larger IMEs but lower interest charges, while a longer repayment term means smaller IMEs but higher interest charges. Therefore, when choosing a loan term, it is also necessary to take into account the borrower’s repayment capacity and their monthly commitment to important financial goals.
Eligibility to file a loan against the property
Those interested in applying for a loan on the property must meet the following eligibility criteria, which vary from lender to lender:
- The property that will be used to secure the loan must be located in India. Lenders usually give a list of cities for which they consider LAP-eligible homes.
- The minimum age of the applicant must be 25 years and the maximum age must not be more than 65-70 years at the time of maturity of the loan
- Employees or self-employed with constant sources of income can benefit from financing under this type of loan
- If it is a self-employed person, the applicant must have held the same job during the last 5 years
- There should be no ownership conflicts over the property in question; In addition, it should be registered in the name of the borrower with clear and legal titles
How to apply for a home loan online
- The borrower should complete the application form and submit the necessary documents
- After verification, the borrower will receive a loan offer; when the applicant accepts the offer, loan approval will be received
- The property is then appraised by the representatives of the lender
- Once completed, the loan amount is credited to the borrower’s bank account
The last word
Depending on the property of the applicant, their credit profile and risk appetite, interest rate, loan term, processing fees and other terms of LAPs offered by various lenders can vary widely. Hence, it is essential to compare the loan choices offered by as many lenders as possible before choosing one.