LAPs are secured loans that are disbursed against the collateral of your property, either residential or commercial or Industrial. Like in the case of a personal loan, LAPs are usually used by individuals with sudden requirements for substantial capital, for instance, expansion of businesses or large one-time expenses like weddings, medical procedures, or education.
Depending on the quality and potential of the property, a bank evaluates the applicant’s credit profile and ability to repay to determine the loan amount and payment schedule. Salaried or self-employed, both can avail of this loan.
Since these loans are secured by property assets, they tend to be at far lower interest rates than comparable unsecured loans like personal loans or business loans. They are also very flexible, in that they can be used for a wide range of expenditures, from business to personal.
A LAP applicant can continue to occupy the property over the duration of the loan as long as payment schedules are adhered to, and the loan can even be topped-up without a fresh appraisal of the property and documentation.
The primary determinant of your LAP loan amount is the fair market value of your property basis a fresh appraisal done by the lender. Banks, housing finance companies, and NBFCs tend to disburse a loan amount that is 50-75% of the market value of the property, contingent on the fact that the property has clear and marketable titles, and all other documents are in place.
Second is your income part (your capacity to repay). That is your bank statements, ITRs/form-16/Salary slip, and current obligations.
There are three big factors to take into consideration while settling on the total interest payments for your loan.
First, the property valuation, sanction of map, area of property and ownership of property represent the primary risk assessment for the bank. Any issues with this will impact the eligibility and interest rate on your loan.
Second, your capacity to repay will be taken into account by the lender. This encompasses factors like your credit history, existing obligations/outstanding loans, presence of a co-applicant, current income, history of employment, job or business profile etc. Basically, high risk leads to a high rate of interest.
Third, your preference for tenure will impact your interest payments. LAPs are more flexible than personal loans and can have tenures ranging from 12 months to as many as 20 years. So a longer tenure will reduce your EMIs but potentially increase your total interest payments, especially if discount rates in the market are quite high. The choice of tenure depends upon your repayment capacity.
If you suddenly have excess liquidity or capital on your hands, and your alternate investment opportunities yield low returns, then you should consider a pre-payment of your loan to reduce your outstanding principal.
If your LAP interest rate is high, you should request to reduce the tenure of your loan and it will lead to a relief in interest portion. If you want to reduce your monthly EMI, you can request the same along with part payment of the loan.
Generally, a loan against property has a longer tenure of around 10 to 20 yrs so that EMI can be easily payable, and hence there is a risk or high chance of any mishap. To avoid a family burden, one should always take insurance (loan shield) against the loan liability so that there won’t be any liability on the family. In a few banks, it is not compulsory but I personally suggest taking this with the loan.
There are 5 gates to be crossed before you get your home loan. The bank loan application, credit review, legal and technical evaluation, sanction, and finally disbursement. The process of credit review is about the purchaser’s profile and income and other general assessments. Legal and technical evolution is based on the property evaluation based on area, construction type, construction age, locality, sanctioned map, valuation, and MCD checks along with other things. This aspect is different from bank to bank and hence purchaser has to face problems in reaching their file to sanction. A knowledgeable banker or DSA is the right person to decide the suitable bank/nbfc for such property to avoid rejections.
Banks follow a simple checklist to evaluate your application and profile to determine your eligibility, interest rate, and loan amount.
The key factors are your credit score, your income stability and amount, your outstanding loans, and your type of property. Any credit score lower than 650 significantly hurts your chances of getting a loan and reduces the pool of lenders who are willing to underwrite your loan. Stable salaried employment/business income, especially with a good track record of existing repayment experience, puts you in good standing, while your salary/income amount determines not only whether you’re eligible for a loan, but also how much of a loan you can get.
Finally, the type of home determines the risk assessment of your loan, with constructed properties that are large apartment complexes by grade-A builders representing a low-risk prospect for banks and likely to go through the process with relative ease. On the other hand, under-construction properties, especially those without all the necessary paperwork, will face more scrutiny and reluctance from banks, reflecting in eligibility, loan amount and interest rates.
There are 5 ways to get the cheapest home loan in the market.
The first starts long before you even decide to get a home loan, or buy a home. It involves building a solid credit history so your credit score is healthy. This ensures that the interest rates charged on your loan will be as low as possible since banks don’t see you as a liability.
Second, when you’re in the market for a new home loan, you need to shop around and see competitive rates from different banks and NBFCs. First time home buyers tend to go with the first bank they speak to, usually the bank with whom they already have an account. This is unlikely to be the cheapest rate in the market.
Third, make sure your home loan is personalized to match your profile. Every borrower is different in terms of type of property, income sources, salary/business, credit score, housing market price etc.
Improperly matching your home loan needs with the wrong bank can cause delays, rejections and interest rate increases. Home loans are notoriously complex and time-consuming. Applicants may spend time and money going through this process. After spending many weeks going through the stages of the process, your application may be rejected at any stage, causing additional losses and a hit on your credit score.
With Part payment. Part-payment of the principal is a good habit to close your loan on time.
If your loan interest rate is high, you should request to reduce the tenure of your loan and it will lead to a relief in interest portion.
If you want to reduce your monthly EMI, you can request the same along with part payment of the loan.
Secondly, in the long tenure of a loan, there is always a jump or relief in the rate of interest by the govt. whenever there is a decrease in the rate of interest, you can raise a request to reduce your rates.
Generally, a Home loan has a longer tenure of around 10 to 20 yrs so that EMI can be easily payable, and hence there is a risk or high chance of any mishap. To avoid a family burden, one should always take insurance (loan shield) against the loan liability so that there won’t be any liability on the family. In a few banks, it is not compulsory but I personally suggest taking this with the loan.
Copyright @ 2022 SME Credit. All rights reserved.