The repayment amount of the Loan Against Property comprises 2 parts - principal amount and interest on the outstanding amount. The interest rate can be of 2 types - fixed or floating. Under the floating type, the rate changes during the loan tenure, whereas under fixed, the interest rate remains constant during the tenure. The table below shows the LAP interest rates offered by leading providers.

Factors Affecting LAP Interest Rate

The interest rate offered for Loan Against Property is not just limited to the bank. Various other factors affect and play a decisive role in the determination of interest rate applicable on LAPs. These are:

• Loan tenure: The duration of loan repayment affects the interest rate of the loan. Shorter tenure means higher EMIs. However, in case of shorter tenures, the lender might go for a higher interest rate
• Borrower’s credit score: Credit score is another important factor affecting the interest rate of the loan against property. A higher credit score of 700 and above helps get loans at lower rates, while those with a low score might have to pay higher interest rate
• Borrower’s profile: A borrower’s age, nature of work (salaried or self-employed), income are some other factors that affect the loan interest rate
• Type of property mortgaged: Age, condition of the property to be mortgaged and its market value also affect the rate of interest for loan against property

Also Read: Everything you need to Know about LAP Loan

Equated Monthly Instalments or EMIs are fixed amounts paid by the borrower on a fixed date every month to the financial institution towards loan repayment. Calculating the EMI in advance helps to know the affordability of the borrower, plan the finances better and also select a suitable bank. This calculation can be done by using EMI Calculator, an online tool.            

The LAP EMI Calculator available on Paisabazaar.com can be used to compute your monthly EMI while availing a mortgage loan. This significantly helps in taking a clear and better decision by comparing different loan deals. By providing the details of the loan principal amount, applicable interest rate and loan tenure, you can get to know the monthly instalment to be paid.

You can also calculate your monthly EMI amount manually using the below-mentioned formula. However, we would suggest you to avoid the hassle of paper-pen work and save time by using Paisabazaar.com’s Mortgage Loan EMI calculator, which provides accurate results along with the break-up of total payment in the form of Amortization Schedule.

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

In the above-mentioned formula,

EMI -  Equated monthly instalment
P - Principal amount (borrowed amount)
R - Applicable rate of interest (monthly basis)
N - Loan tenure or number of EMIs

Factors Affecting EMI

There are 3 important factors that affect the EMIs to be paid by the borrower towards loan repayment. These are:

Principal amount: This is the loan amount borrowed from a bank or NBFC. The loan amount offered to the borrower is majorly decided by the market value of the mortgaged property. Larger the principal amount, bigger are the EMIs.

Tenure: This is the time period decided by the borrower for repaying the loan amount. However, the borrower’s present age and the retirement age might affect his/her liberty to choose a longer loan tenure. Longer the loan tenure, smaller the EMIs.

Rate of interest: The interest rate applicable on Loan Against Property is decided by the bank, and is considered as a critical factor affecting a borrower’s ability to take a bigger loan. Banks/NBFCs offer mortgage loan on either fixed or floating type of interest rate.

The eligibility criteria for availing LAP varies from provider to provider. However, to provide you with an overview of the minimum requirements, mentioned below are some general conditions.

• Applicant must be an Indian national
• He/She should be at least 21 years at the time of submission of the loan application
• Applicant must have been employed by the current organisation or should have been involved in the current business for a specific number of years
• Applicant must have a good credit score, demonstrating his/her history of successful repayments

The documents required for availing a mortgage loan depend on the nature of the occupation of an applicant. The 2 categories of occupation are salaried and self employed.

While availing a mortgage loan, certain charges are levied by the banks or the HFCs to process the loan. This amount varies from bank to bank and should be considered while selecting the financial institution. Let us take a look at these charges. 

• Processing Charge: It is a necessary fee payable at the time of loan application. Even if the loan is rejected, the processing charge would be forfeited by the financial institution.
• Foreclosure and Prepayment Charges: If the borrower wants to pay off the complete loan amount before the due date, it is called foreclosure. In case, the borrower decides to pay a part of the loan amount before time, it is called prepayment. For both prepayment and foreclosure, banks levy a charge on certain categories.
• Other Charges: Some common charges include legal fee, documentation charges, stamp duty, technical evaluation fee, title search report fee, etc.

A distinctive feature of LAP is the flexibility to prepay the outstanding loan amount any time during the loan tenure. As per latest RBI guidelines, no prepayment charge is levied in case of individual borrowers, who have a floating rate of interest applicable on their loan against property. However, corporate entities are still charged a certain fee for prepayment, but it is minimal. Prepaying your loan amount helps to bring down the outstanding principal amount.

Benefits of Prepayment of Loan Against Property

Prepayment of the outstanding amount under Loan Against Property offers various benefits. Some of them are:

• Reduced loan tenure: Prepayment of the loan helps in reducing the outstanding amount. This feature can be utilised in reducing the loan tenure so that you can get over the liability as soon as possible
• Cost-saving on EMIs: Once you have prepaid the loan, the amount to be repaid decreases, thus, the monthly instalments of the loan also go down
• Reduced interest cost: As part of loan prepayment, you pay the principal amount first, which ultimately reduces the interest amount. This helps to reduce the interest cost
• Greater ease of loan repayment within stipulated tenure: Repaying your loan borrowed against the property would become easier 

Q1.  Is it mandatory to have a co-applicant for availing LAP?

A co-applicant for loan against property is mandatory only when the property being mortgaged is owned by more than one person. In such a case, all co-owners of the property need to apply as co-applicants.

Q2. How is the value of a property calculated?

The market value of a property is estimated in terms of money that it can raise if it is sold at prevailing conditions.

Q3. What types of properties are accepted by lenders providing Loan Against Property (LAP)?

Different lenders have different criteria for the type of property to be accepted against a mortgage loan. However,  mostly all financial institutions accept residential, commercial or industrial property. It is important to note that the physical condition and age of the property may affect its acceptance by the financial institution.

Q4. What is the maximum loan tenure available under LAP?

Mostly, the tenure of a loan against property goes up to 15 years. However, this may vary from one lender to another.

Also Read: 3 Common Misconceptions about Loan Against Property

Q5. Can NRIs avail loans against property?

Yes, there are several financial institutions that offer loan against property to NRIs.

Q6.  Do banks accept uninsured property to sanction loan against property?

No, in most cases, the property mortgaged to avail a loan against property needs to insured.

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