Loan against Property: an overview
Loan against property is one of the best examples of capitalizing the financial value of a property. In this module of loan, a borrower takes loan from a bank or a financial institution. This module of loan clearly displays how property value can help you in getting loan sanctioned. In this loan module, a property is kept as collateral security and the borrower can use the loan amount for his personal requirement, it can be for higher education, for developing/funding business, or for other legitimate purposes.
The property kept as collateral security can be a residential property as well as it can be commercial property. Generally, at the time of loan disbursement, 50-60% of the property value is considered as the loan amount. The property is kept mortgaged to bank and it is considered as a secured loan as the property mortgaged works as the guarantee for the borrower.
Eligibility Criteria for Loan against Property
Eligibility criteria for availing loan against property may vary from one institution to other, but in general there is a similarity: the eligibility mostly depends on the income profile of the borrower. The basic eligibility is validated for the genres of applicants:
- Salaried individuals: The applicant should be a permanent employee with the government or a well established company. Minimum age of the borrower is 25 years.
- Professionals: The applicant has to be a professional for example, doctor, engineer, architect, chartered accountant, etc may apply in these category. Maximum age of the applicant is 65 years.
- Self employed: The applicant should be a regular tax payer by fling income tax returns. The individual must have been in the same business for a minimum number of at least 3-5 years.
Besides income eligibility the property to be mortgaged needs to be free of all sort of legal litigation and the property should be in the name of the applicant.
Documents needed for the loan against property processing:
- Legitimate proof of residence can be current utility bill or ration card.
- Salaried individuals need to produce their salary slips for last 6 months.
- Self-employed individuals should present a certified financial statement for the last 3 years.
- A copy of the latest bank statement for last 3-6 months.
- Duly filled loan application form with the latest passport sized photograph.
- Self-employed individuals need to present proof of existence of their business and related business profile.
- Self-employed individuals are expected to supply details related to their educational qualifications.
- Copy of income tax returns for last 3 years should be presented.
- Processing fee check.
- All property related documents, including the approved building plan of the property should be attached with the loan application.
- Copy of details of all existing loans.
Interest Rates for Loan against Property
An individual who needs a loan against property may decide between two options of interest rates. These interest rates may vary according to the duration of the loan.
- Fixed Interest Rate: This interest rate stays fixed throughout the loan duration. It varies from bank to bank but the general rate lies in the 11 – 15% per annum range.
- Adjustable Rate: This interest rate is not fixed and static; it varies at par current market setting. This module of interest rate could be beneficial for those who wish to avail the loan for a short duration.
Loan against Property EMI Calculator
The EMI for Loan against Property can be calculated using the easy formula mentioned here.
EMI = [P x R (1+R) N]/ [(1+R) N-1]
- P is the loan sum in use
- R is the valid rate of interest
- N is the tenure (number of months) of the loan applied.
Loan again property is a great facility where short term loan is needed against property. However, before mortgaging a property, its pros and cons should be properly judged.