20 queries on Loan Against Property Answered

Updated on December 28, 20185 mins read

Need funds? Have a house?  You could take a Loan against Property. Read on to know more.

1. What is a Loan against Property? How is it different from a Home Loan?

The two loans are poles apart. A Loan against Property is a multi-purpose loan. The end-use could be funding your elder child’s marriage, your younger child’s education abroad, expanding your business. The collateral (secured asset) for this loan is a property which is already in existence or a plot of land.  A Home Loan on the other hand is taken only for the purpose of buying a residential property.

2. Why should I take a Loan against Property?

Your assets like gold, FD etc. can be used as collaterals for loans. Real Estate is a valuable asset.  You can leverage this asset and obtain necessary funds.

3. Should I take a Personal Loan or a Loan against Property?

A personal Loan is also an all-purpose loan. However, no collateral is required for a personal loan. If you have a property, you should leverage it for funds. A Loan against Property scores over a personal loan for the following reasons:

  1. A Personal Loan is available at steeper interest rates (around 20%) as compared to a Loan against Property (around 15%)
  2. A Personal Loan is available for shorter periods (1-5 years) while a Loan against Property is usually available for longer tenures of upto 15 years.
  3. The Processing fee is lower for a Loan Against Property (around 1%) as compared to a Personal Loan (around 2.5%)

 4. Can a self-employed person avail of a Loan against Property?

Yes. Both salaried and self-employed applicants can obtain a Loan Against Property.

5. Can NRI’s get a Loan against Property?

Yes. Most banks are willing to offer loans to salaried Non Resident Indians (NRIs). They should live in select countries and should work for reputed organizations.

6. Do you need to specify the purpose for which you avail a Loan against Property?

Most banks don’t require you to specify the purpose for which you take a Loan against Property, upto a particular limit. Above that, they might require you to provide an undertaking that the loan is not for a speculative / illegal purpose.

 7. Can a Commercial Property act as collateral for Loan against Property?

Yes. You can take a Loan against Property by providing a Residential or Commercial Property as collateral. You can also take a loan against a plot of land.

 8. What is the quantum of the loan I can get?

For a Loan against Property, around 60-80% of the market value of the property provided as collateral depending upon the bank you opt for. Factors like your income, savings, investments, job stability, age, dependents, spouse’s financial health, other loans in your name also play a crucial role in determining the loan amount.

 9. What are the taxation aspects?

Unlike a Home Loan, no tax incentives are available on the EMIs in case the Loan against Property has been availed by a salaried person. A businessman however can claim tax deduction on the entire interest amount paid on the loan if he can prove that the loan funds were used to improve his business.

10. How would my property value be assessed?

The bank shall determine the value of the property after conducting a formal valuation process.

11. What are the documents required for applying for a Loan against Property?

 The documents differ for a salaried and self-employed person:

A Salaried applicant needs to submit:

1. Application form with photograph 2. Identity and Address Proof 3. Latest Salary Slips 4. Form 16 5. Bank Statements (Last 6 months) 6. Processing fee cheque

A Self-Employed applicant needs to submit: 1. Application form with photograph 2. Identity and Address Proof 3. Proof of business existence & Education Qualifications. 4. Last 3 years Income Tax Return 5. Last 3 years P&L and Balance Sheet 6. Bank Statements (Last 6 months) 7. Processing fee cheque

12. How much time does the Bank take to disburse the loan?

Banks usually take around 2 weeks for disbursing the Loan against  Property once all documentation is completed.

13. Do I need to insure the property?

Yes. The banks usually require that the property be insured against flood, fire, flood, earthquakes etc. during the loan tenure.

14.  How can I repay my loan?

You can repay your Loan against Property through Equated Monthly Installment (EMIs). It can be paid through Post Dated Cheques (PDC) or Electronic Clearance System (ECS)

15. Can I pre-pay my loan?

Yes. The Loan against Property can be pre-paid prior to schedule. Commercial Banks cannot charge foreclosure charges on any floating rate term loans sanctioned to individuals as per a recent Reserve Bank of India (RBI) directive.

16. Can I make part pre-payment of my loan?

Yes. You can make part pre-payments of a minimum amount.

 17. How is the interest calculated?

Interest rates are usually calculated on a monthly or daily reducing balance method, depending on the bank.

18. What happens when the property is jointly owned by more than one person?

 All the co-owners of the property will automatically become joint applicants of the Loan against Property.

19. Can I take a loan against a house I have given on rent?

 Yes.  All that matters is that you have a proper title deed and other ownership documents. It doesn’t matter whether you live in the house or give it on rent.

 20. Does a bank check my Credit Score before giving me a Loan against Property?

Yes.  Even though a collateral is provided, banks check the Credit Score of the applicant for his repayment history in case of Loan against Property. A CIBIL score over 750 is usually considered good enough for loan approval.  Here are some tips for improving your Credit Score.

In case of a loan against any other asset like shares or gold, the bank would sell the pledged asset to recover its dues. That’s a lower risk to take as compared to losing a home. A Loan against Property could be a good alternative for you if you are confident of repaying your dues on time.

Cheers to a healthy, financially-stable and comfortable life! Switchme is India’s first end to end, online home loan service provider. Our home loan advisors guide you to the most suitable home loan product and carry out the entire procedure, while you enjoy a hassle free experience. Sign up to find out your eligibility or Calculate your savings from switching your loan.


16 COMMENTS

Have a question? Post it here and we will get back to you within 1 working day.

  1. Naveen
    Oct 06 2018 at 1:20 pm
    Reply

    Madam

    How many Co applicats can be added for Loan against property

    • Suma Ganesh
      Suma Ganesh
      Oct 12 2018 at 12:52 pm

      Hi Naveen,
      There is no said rule about number of co applicants. But usually a maximum of 4 co applicants apply for home loans or LAP

  2. ANILKUMAR
    Sep 26 2018 at 3:01 pm
    Reply

    Hai, Madam/Sir,
    I have worked in UAE from 1995. I have a NRE account in SBT/SBI , but my balance is very low.I am leaving here wiht my family.Now I need 3000000 (30 Lakhs) rupees for solve aome personel issues, I have 22 cent property and 1600 sq feet home in my own name,I am ready to pay 50000 monthly and if get money from other sources , will close the loan as soon as possible,
    I have no more time to stay in kerala for loan formalities due to the resposibility of my job. If I am eligible for this amount please let me know the details

    Best Regards

    • Suma Ganesh
      Suma Ganesh
      Sep 28 2018 at 1:35 pm

      Hi Anil,
      Thank you for writing in to us
      You can get a loan on your property. But the amount depends on the rates in your area.
      As mentioned above, you could hope to get about 60% of your property value as loan. So if you need 30 Lakhs, your property should be valued at Rs.50 Lakhs or more.

  3. Aditi
    Apr 05 2018 at 10:59 pm
    Reply

    Hi,
    I had taken 80 % loan against 2 of my properties and invested it in a preleased commercial property and a business venture .
    Now due to some unforseable circumstances ,i’m unable to repay the monthly installments to the bank and am OK even if the banks take over my mortgaged collateral 2 properties .
    I just don’t want the bank to go after my commercial property (which is going great ! ) and my business . How do i ensure this ?
    Plz advise .

    • Suma Ganesh
      Suma Ganesh
      May 23 2018 at 11:42 am

      Hi Aditi,
      Thank you for writing in to us
      It looks like your current home loan interest is at 9.50%.
      At this rate, even at EMI of Rs.13,800 monthly, you can repay outstanding amount of Rs.3 Lakhs fully within 2 years.
      If you maintain your EMI at Rs.17,000 you will close the loan faster.
      If the interest rate is indeed so high, I would suggest you meet the bank and renegotiate the same.

  4. S ARUN
    Nov 22 2017 at 11:19 pm
    Reply

    I have been working abroad for the last 6years. I am not having NRI account but my salary is credited on my sb account which is joined with my mother. Now I want to take mortgage loan against property on home. Property is in the name of my mother. Am I eligible for mortgage loan. Note I am the only son of my parents.

    • Suma Ganesh
      Suma Ganesh
      Nov 28 2017 at 11:40 am

      Hi Srini,

      Thank you for writing in to us.
      You will have to inform the bank in written to adjust your surplus amount towards your Outstanding loan amount. An email should do, but it is best to follow up with a call to the branch.

  5. PRITESH PATEL
    Sep 15 2017 at 12:53 pm
    Reply

    DEAR SIR, I AM PRITESH PATEL FROM SURAT GUJARAT INDIA. ME AND MY MOTHER DHARMISTHA BEN PATEL. SHE IS DIVORCE AND SHE WAS GOVERNMENT SERVANT TOOK A LOAN FROM CITI FINANCE BANK FROM SURAT IN 2006 BUT IN YEAR 2009 MY MOTHER WAS EXPIRED IN DECEMBER 2009 SO I WENT TO CITI FINANCE OFFICE IN SURAT AND GAVE HIM DEATH CERTIFICATE AND ASKED THEM THIS LOAN IS INSURED ? THEY SAID THAT THIS IS NOT INSURED AND SAID THAT YOU HAVE TO PAID IT BECAUSE YOU ARE A CO APPLICANT SO I GAVE THEM MY MOTHERS DEATH CERTIFICATE AND MY BANK CHEQUE FOR EMI FROM MY ACCOUNT BECAUSE HER SALARY ACCOUNT WAS CLOSED AFTER HER DEATH AND I PAID ALL THE EMI FROM MY ACCOUNT AND LOAN IS CLOSED IN JUNE 2017.
    SO I REQUESTED TO BANK TO RELEASE THE PROPERTY PAPER BUT THEY DIDNT GAVE ME PAPER AND TOLD ME TO SUBMIT YOUR MOTHERS DEATH CERTIFICATE AND WILL COPY SO I GAVE HIM DEATH CERTIFICATE AND ALSO WILL COPY WHICH WAS PREPARED BY MY MOTHER BEFORE HER DEATH AND IN WILL IT IS CLEARLY SEEN THAT I AM NOMINEE AFTER MY MOYHERS DEATH BUT THEY NOT GAVE ME THE PAPER.

    • Suma Ganesh
      Suma Ganesh
      Nov 01 2017 at 9:50 am

      Hi Pritesh,
      I hope your issue has been sorted by now.
      If not, here goes- If there is a registered will that nominates you as owner of property after your mother, the bank can not hold back the documents. However, banks don’t generally hold back the property papers unless there is a document or formality missed.
      Please meet someone senior at the bank to understand the reason.
      If the issue continues, it would be best to engage a good lawyer to understand the problem and resolve it for you.

  6. Vivek
    Sep 01 2017 at 2:50 pm
    Reply

    I have taken a loan against my property in 2014. Monthly EMI I pay is Rs.12855/- Can I avail additional loan against this Loan. Please reply.

    • Suma Ganesh
      Suma Ganesh
      Nov 02 2017 at 10:33 am

      Hi Vivek,
      Thank you for writing in to us.
      Generally speaking, you can get top up on existing loan account.
      But this depends on many factors. You could find out more if you speak to your bank.
      If you need our advise, we would require many more details. Please do register on our website to get a call back from one of our expert advisors.

  7. Bhavuk
    Sep 10 2016 at 3:01 pm
    Reply

    I do have property of my ancistors i stay there we pay house tax but dont have property papers so i am eligible for loan or not

    • Sumita Nath
      Sumita Nath
      Sep 15 2016 at 12:23 pm

      Hi Bhavuk,
      You need to have the following list of documents to opt for a home loan:
      – PAN Card (compulsory) – can also serve as an ID proof
      – Current Address Proof
      – Property documents
      – Income related documents
      So, you would not be eligible for a home loan without the property documents.

  8. sheela
    Jul 18 2016 at 11:04 pm
    Reply

    My husband is died. he has taken a loan against property on home from icici bank.Home is on name of only my husband and there is no nominee mentioned but i am a co-applicant in the loan.Now i want to close a loan and take a property paper return form icici bank.can bank handover the house property paper after close of loan?. Please suggest me.

    • Sumita Nath
      Sumita Nath
      Oct 05 2016 at 1:01 pm

      Hi Sheela,
      Sorry for the delayed response.
      Yes since you are the co-applicant in the loan you can close the loan and take the handover of the property papers from the bank.