What is The Rate of Interest of a Loan Against Property in 2022?
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As a secured loan, a loan against property (LAP) has a much lower interest rate than a loan that isn’t backed by anything. Another way, a LAP loan shouldn’t only provide you with a low interest rate but also a fair appraisal of your home’s worth. LAP also has a repayment plan that suits your needs and low or no closing costs. Let’s continue the topic of the interest rate on loans against property and how to get a lower rate.
What is Loan Against Property?
A loan against property (LAP) is approved as long as the lender keeps an asset as a mortgage. This asset can be a piece of land, a house, or any other place where business is done. The asset stays with the lender as collateral until the total loan against the property is paid back. Most of the time, you have up to 20 years to repay the loan.
Lenders usually let you borrow between 50% and 70% of the property’s market price as a mortgage loan, which you can pay back over time through EMIs. You can use the LAP to meet your or your business’s needs.
Interest Rate of LAP
Depending on your profession, the interest rate on a loan against property will differ. For example, lenders charge higher interest rates on loans to salaried people than to self-employed people or businessmen. Generally, most lenders apply 11.5% p.a. interest to a mortgage loan.
Interest Rates on Different Properties (LAP)
| Conditions | Industrial Property | Commercial Property | Residential Property |
| Interest Rates | 9.35%-13.7% | 7%-20.6% | 7%-20.6% |
| Loan to Value | 50%-80% | 40%-80% | 1%-80% |
| Processing Fee | 0.2%-1% | 0.2%-3% | 0.1%-3.0% |
| FOIR | 0.65 | 0.65 | 0.55-0.65 |
Factors Affecting Loans Against Property
Credit Score
A high credit score shows that you use credit wisely and are good with money. As a result, many lenders provide mortgage loans with lower interest rates for people with high credit scores.
Loan Amount
Many banks set interest rates on mortgage loans based on the loan amount. Most of the time, the interest rate on loans against property up to Rs 30 lakh is lower than that for loans for more than Rs 30 lakh.
Property Type
Some lenders charge less interest on loans for homes owned and lived in by the borrower than on loans for commercial properties or properties that are not owned and lived in by the borrower.
Women Applicant
Many lenders give women borrowers a break on their interest rates, usually 0.05%. If your female family member applies, it can help you get a lower interest rate.
LTV Ratio
The loan-to-value ratio (LTV) measures how much of the property’s value you can borrow. Most lenders will give up to 70% of the property’s value as collateral for a loan. When you borrow less, the loan-to-value ratio decreases, making you eligible for more loans and lowering your interest rates.
How to Lower the Interest Rate of LAP?
Here are some essential things to think about if you want to lower the interest rate on a loan against property:
- Find out what the interest rate is for each type of loan. For example, it’s possible that the interest rate between Rs. 30 lakh and Rs. 20 lakh will be lower than the interest rate on a loan between Rs. 20 lakh and Rs. 30 lakh.
- Choose the term carefully because it directly affects the interest rate that the lender will offer.
- Watch out for loan providers who offer low-interest rates.
- Don’t fill out multiple applications with different lenders. Each application rejection will lower your CIBIL score, and a low CIBIL score will cause the lender to charge you a higher interest rate.
- Choose a loan amount that you can easily pay back.
Documents Needed for a Loan Against Property
You will have to send in the following general documents:
- Address proof: Aadhaar card, driving license, voter ID card, etc.
- Identity proof: passport, Aadhaar card, PAN card, etc.
- Form 16
- Bank statements
- IT returns certificate
- Income proof documents
- Salary slips
- Property documents: sales deed, property tax receipt, registration certificate, building plan, etc.
Steps for Getting a Loan Against Property
Here is a general outline of how to get a loan against property:
- Choose a lender with a good reputation that has the best loan against property deals on the market and fits your budget.
- Fill out the lender’s website’s online application form. Type in your name, address, income, and other necessary information.
- Enter the details about the loan you want, like how much you want to borrow, how long you want it to last, etc.
- Based on your information, the lender will decide if you can get a loan.
- The lender will get the paperwork they need and check the value of your property.
- A loan approval letter will be sent to you after the lender has checked your information.
- You must show the original property papers before the loan is paid out.
Wrapping Up
Real estate is an asset that can be used as security for a mortgage loan, whether for a home, a business, or something else. When unexpected financial needs arise, like growing a business, sending a child to college, paying for a wedding, or dealing with a health emergency, having property may help. You can get a loan quickly and easily by pledging your home as collateral. The loan against property rate has a direct impact on your finances. Its interest rate fluctuates from bank to bank, state to state, and even city to city. So check the interest rate before applying!
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