CONVENIENT LOANS AGAINST YOUR PROPERTY

Amongst the variety of loans available these days, to help tide over a cash crunch, banks offer loans against property. Here’s how this works and why it scores over other types of loans. Ifyou are sitting on a valuable asset in the form of a property, you never have to worry about your loan applications being rejected. Banks offer a product called Loans Against Property (LAP), which gives you access to finance, on the basis of the property that you hold.

ALL PURPOSE LOAN

When you apply for a LAP, there are no restrictions on the purpose for which it can be used. It can be used to meet marriage expenses, pay off huge medical bills or fund your child’s higher education. You could even use this loan to meet your travel expenses, if you plan an expensive holiday with your family. A LAP can also be used to purchase a new house or to improve the condition of your current residence. In fact, you can use this loan for almost anything since it has a sound security backing it.

IN THE MARKET

Many lenders like HDFC, Kotak Mahindra Bank, ICICI Bank, State Bank of India, Union Bank of India and Bank of Baroda offer LAP under various names. Kotak Mahindra Bank calls its LAP- Kotak Home Equity Loan while HDFC calls it the HDFC Home Equity Loan and ICICI Bank offers ICICI Home Equity Loans. Bank of Baroda’s LAP goes by the more straight-forward description - Advance Against Property. State Bank of India and Union Bank of India get more explicit, terming their loans – State Bank of India Loan Against Mortgage of Property and Union Mortgage Scheme, respectively.

ELIGIBILITY

LAP is offered to individuals between the age group of 18–60 years and who are either salaried employees, professionals or selfemployed. Union Bank of India also offers loans to individuals who don’t pay income tax, as long as they provide proof of income to the bank. State Bank of India offers loans to individuals who are engaged in agricultural and allied activities, too.

LOAN DETAILS

Value of property: An individual can avail of a LAP by mortgaging his own property i.e. his residential property. The loan will be approved only if the residential property is self-occupied; property, which is rented out, is not covered under this scheme. However, these loans are not offered if the market value of the property is below a predetermined specification of the issuing bank. For instance,ICICI Bank offers LAP to individuals only if the market value of their property is at least Rs 11 lakh, while Kotak Mahindra considers property that is worth Rs 20 lakh plus. Some lenders, like HDFC are willing to offer a LAP for property that is worth as little as Rs 5 lakh. Tenure: A LAP is usually given for a period of 10 to 15 years.

For instance, ICICI Bank offers such loans for a tenure of 15 years and HDFC sanctions these loans for a period of 10 years. Loan value: Most lenders offer a minimum loan of any where between Rs 1 lakh to Rs 5 lakh and a maximum of Rs 50 lakh, (subject to the value of the property that the individual possesses). For example, ICICI Bank sanctions a minimum of Rs 5 lakh and finances up to 45-60 per cent of the technical market value of the property.

However, it stipulates that the property should be only 25 kilometres away from an ICICI Bank branch. Kotak Mahindra sanctions loans that are up to 50 per cent of the market value of the property while HDFC offers up to 60 per cent of the market value with a minimum loan amount of Rs 1 lakh and a maximum loan amount of Rs 50 lakh. Union Bank of India offers a maximum loan limit of Rs 25-50 lakh and a minimum of Rs 1 lakh. State Bank of India lends a minimum of Rs 1 lakh and a maximum of Rs. 50 lakh subject to the loan amount being restricted to 24 times the net monthly income of a salaried borrower (net of all deductions, including TDS) or twice the net annual income for other borrowers (income as per the latest IT return, less taxes payable).

REPAYMENT TERMS

There are a variety of repayment options available in the market to suit the needs of the various borrowers. State Bank of India allows you to repay your loan within a maximum of 60 Equated Monthly Instalments (EMIs). HDFC’s LAP can be repaid over a maximum period of 15 years on an EMI basis. Kotak Mahindra Bank allows you a loan repayment period of up to 20 years, which varies depending on the purpose of the loan and the individual’s profile. Union Bank of India’s loan must be repaid within a maximum of 60 EMIs with the bank collecting postdated repayment cheques.

DOCUMENTATION

In addition to the standard documents that must be deposited with the bank in order to avail of a loan, in the case of a LAP, banks also usually ask for: Allotment letter of the co-operative society. Agreement for sale/sale deed for the property. Original title deeds of the property offered for mortgage. Paid receipt of latest maintenance, water tax, municipal tax and any such taxes. A non-hindrance letter from the cooperative society.

LAPS SCORE OVER OTHER LOANS

If you do qualify for a LAP, it is certainly preferable to other loans in its genre such as personal loans and festival loans. It offers a longer tenure for repayment, a lower interest rate and a variety of repayment options to choose from.

IN BRIEF

Lenders have on offer a product called Loan Against Property (LAP), which gives you access to finance on the basis of the property that you hold. When you apply for a LAP, you are not required to disclose the purpose for which it will be used. Most lenders offer a minimum loan of anywhere between Rs 1 lakh to Rs 5 lakh and a maximum of Rs 50 lakh. There are a variety of repayment options available in the market to suit the needs of the various borrowers. If you do qualify for the LAP available, do consider that it is certainly preferable to other loans in its genre such as personal loans.