If you are one of those who are planning to take a loan against property, we answer four questions you may have regarding the loan.
How much loan can you get?
To calculate eligibility, a lender will look at a certain percentage of the market value of your property and your repaying capacity. Typically, banks and non-banking finance companies (NBFCs) give only a percentage of the market value of your property (50-65%) as the loan amount. The lender will also look at your repaying capacity by taking into account your income minus other equated monthly installments. There is also an age limit to take this loan—60 years if you are a salaried individual and 70 years if you are self-employed. The minimum loan amount you can get is Rs.2 lakh, which varies across financial institutions.
What’s the interest rate and tenor?
Since loan against property are secured loans, since you mortgage your property with the lender to avail, it is cheaper than personal loans. So while interest rates on personal loans are in the range of 12.5-21% per annum, depending on your salary, the company you work for and various other parameters, loan against property currently at 12-15% per annum.
The tenor for loan against property can go up to 10-15 years. You can either opt for a lump sum or an overdraft facility.
Are there processing and penalty charges?
Generally, the processing charge for this type of loan is 0.50% to 3% of the loan amount plus service tax. Service tax is currently 14% of the amount. The processing fee is usually deducted from the loan amount sanctioned to you. Some lenders may even have a 2% prepayment charge in case you of loan against property you want to repay the loan amount before the term end. Stamp duty and other statutory charges are applicable as per state laws. In case of late payment of equated monthly installments (EMIs), you may have to pay a penal amount which varies across financial institutions. Usually the penal interest is 2-3% per month on the overdue installment.
What are the documents you need?
Salaried individuals are required to give proof of identity or residence, salary slips, Form 16 and six months’ bank statements. For the self-employed, other than identity proof, you may be asked for income-tax returns of the past three years and the profit and loss and balance sheet of your business. You can include your spouse as a co-applicant. All co-owners of the property need to be co-applicants of the loan against property.
Before opting for such a loan, assess your repaying capacity. Any default in repayment will have an adverse effect on your credit score, and of course you will be liable to pay a penalty. Shop around for lower interest rate and other charges. Always understand the terms and conditions before entering into a loan agreement.