A loan against property (LAP) is instrumental in assisting most individuals to meet urgent financial obligations and emergencies. Preparing for the loan against property application will make it seamless for any borrower to get a faster approval and disbursal. But first, let’s see what this financial tool is?

What is a Loan against Property

A loan against property is what the name implies — a secured loan that is sanctioned when a property is pledged with the lending institution. It is natural that if an individual desires to avail of a loan against property, they have to be the owner of that property, preferably a residential and self-occupied property. 

They can, however, also get a loan against commercial properties, such as a factory or shop, but this is less likely as most HFCs, NBFCs, and banks prefer providing loans against property only against residential properties.

A loan against property can be used to fulfil all kinds of financial obligations. Those who are self-employed can use the loan for:

• Expanding a business
• Debt reconciliation
• Operation usage
• Purchasing raw materials
• Making a new investment
• Meeting personal obligations

The eligibility of a loan against property is calculated by factoring in parameters like:

• Age
• Income
• Current property value
• Borrower’s existing obligations
• Stability of employment
• Past track record of borrowing

Any individual who files income tax returns will be permitted to apply for a loan against property in India. The applicant’s age, however, has to be above 24 years when a loan against property commences and up to 65 years when a loan against property matures.

Using a Loan Against Property for Self-Employed

Besides filling up the application form and providing identity proofs, a borrower needs to also submit property ownership documents. A property evaluation report is often necessary. In case the information in the shared documents is inaccurate, it may result in a loan against property rejection. If the borrower is a salaried person, here are some of the documents they need to submit:

• Application form with a recent photograph
• Valid proof of identity
• Proof of residence
• Salary slips for three months
• Form 16
• Bank statements for six months
• A cheque toward the processing fee
• Proof of property ownership

If you are self-employed or a businessman, the LAP loan documentation may vary slightly. Following are some of the documents required:

• Application form with a photograph attached
• Valid photo identity
• Proof of current residence address
• Evidence of business, educational qualification certificates (for professionals only)
• A self-employed professional needs to submit IT returns covering the past three years
• IT returns (self and business), balance sheets, and profit and loss statements for three years
• If the borrower is a businessman, they will have to share the business profile
• IT returns (both business and self) covering three recent years
• Balance sheets as well as profit and loss statements for the last three years
• Bank statements covering the last six months
• A cheque toward the processing fee
• Proof of property ownership

LAP Interests Rate (Floating) for Self-Employed Borrowers:

Benchmark Rate (BR)	Current BR	Kind of Loan	BR + Spread	Effective ROI per annum
Self-employed Floating Reference Rate (FRR)	13.30%	LAP	FRR -4.80% to FRR +4.70%	8.50% to 18%

Types of LAP Fees	Charges Applicable
Processing fees for loan against property	Up to 6%
LAP statement charges	Nil
LAP Interest and principal statement charges	Nil
LAP EMI bounce charge	Up to Rs.3000/-
LAP Penal interest	Up to 2% in a month
LAP Origination fee	Up to Rs.4,999 (onetime expenditure)

Calculating EMIs against desired mortgage loan interest rates is difficult and time-consuming. A mortgage loan EMI calculator is a financial tool that allows users to calculate their loan EMIs almost instantaneously. It requires a few details, including but not limited to the loan amount, rate of interest rate, and tenor. 

During the repayment period, if the borrower finds it difficult to continue the loan and also finds that another lender is offering better loan against property interest rate and loan terms, they can choose to do a loan balance transfer from the previous lender to a new one. Minimal additional charges like a prepayment charge may be involved. Calculating all the costs involved in the loan against the property transfer process is, however, vital.

Concluding Thoughts

To conclude, a loan against property is one of the safest and most preferred options when it comes to availing of funds in a large quantum. A borrower, however, needs to ensure that the loan is repaid on time. If a borrower fails to do so, the lender will have the right to possess the mortgaged property.