Little Known Facts About Loan Against Property – And Why They Matter

There are various types of retail loans offered by the banks, but with restrictions on their usage. Loan Against Property is an only loan that does not have restrictions on the usage of the loan proceeds. The proceeds of the loan can be used for personal expenditures like marriage, higher education, medical emergencies, business travel or any unforeseen expenses. Therefore a loan given against the mortgage of a property is called Loan against Property. This is one of the cheapest retail loans after Home Loans. Employees, professionals and Self-employed individuals who are IT assesses and NRIs who own residential property or commercial property in his/her own name or in the name of spouse/children/parent/sibling can take a Loan Against Property.

Features and Benefits of Loan against Property

1)  Multi-purpose loan: There is no restriction on the usage of the loan amount for a loan against property. It could be for business, education, medical needs, property purchase, marriage or any other personal or professional need, except for speculation purposes.

2)  Longer Tenure: Loans against property are available for a comparatively longer tenure as compared to other loans. These loans are available for a tenure of 15 years or more enabling the borrower to get sufficient time to clear the loan.

3)  Low processing fees: Most of the banks charge a low processing fee of about 0.25% of the loan amount sanctioned.

4)  Loan amount: There is a high upper limit for a loan amount of up to Rs.10 crores in Loan against Property. It depends on the property and the criteria followed by the bank.

5)  Property type: Any property type can be kept as security to avail this loan. It could be a self-occupied residential property or commercial property or just an empty plot.

6)  Repayment options: There are various EMI options made available by the banks. The customer can choose the option which suits him the best.

7)  Interest rates: the interest rates on loan against property come at lower interest rates. The interest rates can be as high as 16%.

ELIGIBILITY

You are eligible if you are:

  1.    An individual who is;
  • An Employee or
  • A Professional, self-employed or an income tax assesses or NRIs (Who has residential property or commercial properties in his own name or in the name of spouse/children/parent/sibling)
  1.   Minimum net monthly income of Rs. 25000/- (or Rs. 3 lacs per annum)
  2.   A loan under Loan Against Property should be liquidated before eldest borrower attains the age of 70 years.

DOCUMENTS

Following is the list of documents required to avail a Loan Against Property:

1)    Proof of identity (any of the following)

  •  Passport
  •  PAN Card
  • Employee identity card
  • Any other valid proof

2)   Proof of address (any of the following)

  • Electricity bill
  • Telephone bill
  • Aadhar
  • Any other valid proof

3)  PAN Card

4)  Last 12 months bank statement

5) Proof of income

  • For salaried class
  • Last one-year ITR
  • Form-16/ letter from Employer
  • Last 6 months salary slip
  • For non-salaried class
  • Last three years ITR
  • P and L Balance sheet

6) Property papers

  • Title Deed

7)  3 photographs

8)  Proof of out-goes

  • Loan repayment statement, if any
  • LIC Policies, if any
  • Valid proof of any other out-go

9)   Additional document required for NRI

  • Copy of Visa stamped on the passport
  • Latest work permit
  • Employment contract (if the contract is in any language other than English, the same has to be translated into English and attested by Employer/Indian Embassy)

10)   Any other document required as per the application form

Loan To Value Ratio (LTV Ratio)

LTV, or loan-to-value, is all about how much mortgage you have in relation to how much your property is worth. It’s normally a percentage figure that reflects the percentage of your property that is mortgaged, and the amount that is yours (the amount you own is usually called your equity).

SECURITY

  • Equitable mortgage of the property
  • In cases where the commercial properties are rented out on a lease, an equitable mortgage on the property will be created and assignment of rental receivable will be obtained. In addition, a Tripartite Agreement / Irrevocable power of attorney is also required.

REPAYMENT

  • The applicant will have to repay the loan within the loan tenure taken.
  • There is no moratorium period available.

PREPAYMENT PENALTY

  • There is no prepayment penalty if the loan is adjusted by the borrower from his own verifiable legitimate sources
  • A penalty of 2% on the average balance of the preceding 12 months, if the loan is taken over by any other Bank /FI or adjusted by the borrower in a lump sum from any third source/party (except genuine sale).

GUARANTEE

Third party guarantee is not mandatory for resident Indian. In case of NRIs guarantee of a local resident Indian required

INSURANCE

The property should be comprehensively insured for an amount not less than the value of the property, covering all risks with Bank clause.

LOAN AGAINST SECURITIES

There are certain expenditures that can be unavoidable and sometimes it might become difficult for some of us to meet them. We usually tend to avoid taking loans and sell our securities and assets instead. Loan against securities is a solution to this problem. Loan against securities helps to meet your financial needs without liquidating your assets. It gives you double benefit of getting quick liquidity on your securities, while you continue to earn returns on them. Loan Against Securities is Loan Against Marketable Securities in which customer pledges his investment in favour of the lender and borrow fund to meet his financial and personal requirement without selling his investment. You can opt for this loan when you need instant liquidity for your personal/business needs and you are sure to pay back it in a few months.

Features of Loan Against Securities

  • It is a secured loan. Shares, debentures, mutual funds etc. act as collateral for this loan
  • Loan Against Securities is provided only for personal purposes. The loan amount cannot be used for speculative activities, any purpose linked to capital market activities, or for any anti-social purposes.
  • Generally, the loan tenure is 12 months but one can easily renew or review the loan
  • There are no prepayment charges for loan against securities
  • In this loan interest is charged only on the amount utilised-no EMI or post-dated cheques are required
  • The processing fee for this loan is quite low. It ranges from 0.25% to 2% of the loan amount.
  • The loan amount depends on the security given by the borrower.
  • There is a margin ranging from 50%-80% of the value of securities for the loan against securities.

The following securities that can be pledged are as follows:

  • Equity Shares
  • Mutual Funds (Equity) up to 50% of NAV (Net Asset Value)
  • Mutual Funds (Debt) up to 80% of NAV
  • Life Insurance Policies issued by LIC and select Private Insurance Companies
  • National Savings Certificates (NSC)
  • Kisan Vikas Patra (KVP)
  • NABARD’s Bhavishya Nirman Bonds
  • Non-Convertible Debentures

Eligibility Criteria

The following individuals are eligible to apply for a Loan Against Securities:

  • Borrower should be above the age of 18 years
  • Indian Residents
  • For select securities, you are eligible for the loan if you are a member of a Hindu Undivided Family (HUF), an NRI, owner of a sole proprietorship, partnership firm, or private limited company.

Documentation

Salaried borrowers:

  • PAN card
  • Identity and address proof
  • Photograph
  • Last 6 months bank statement
  • Cancelled cheque
  • Demat account statement
  • Income proof

Self-employed borrowers:

  • PAN card
  • Identity and address proof
  • Photograph
  • Last 6 months bank statement
  • Cancelled cheque
  • Demat account statement
  • Income proof
  • Balance sheet and profit and loss account
  • Office address proof and existence of business proof

Security

There is no need for additional security for loans against securities. The pledged securities act as collateral for the loan.

Margin

Shares: 50% of the market value of shares offered for security

Equity/ Hybrid/ ETF MF: 50%

Debt/ FMP MF: 15%

LOAN AGAINST FIXED DEPOSIT

There is always a time in life when you might have to meet unforeseen expenditures like medical payments or a sudden vacation. Fixed Deposits are an easy source of finance when it comes to liquidity. One can easily break their FDs to meet the expenditures. But it has a drawback, you will have to pay charges for breaking your FD before the completion of its tenure. Loans against fixed deposits help you to meet your expenditure without breaking your fixed deposit.

Loan Against Fixed Deposit is a loan in which customer pledges his FD in favour of the lender and borrow fund to meet his financial and personal requirement without breaking his/her FD.

Features of Loan against Fixed Deposit

  • Loans against fixed deposit can help you to meet your short-term requirements, without even breaking your fixed deposit.
  • Interest is charged only on actual amount utilized and for the tenure of utilization, no EMI or post-dated cheques are required
  • Interest is charged on a daily reducing balance.
  • There are no processing charges for loans against fixed deposits.
  • There are no foreclosure or part-payment charges
  • The interest rate varies between 1% -2% above the relative fixed deposit rate.
  • There is no need for additional security, the fixed deposit acts as a collateral for loans against Fixed deposit.

Eligibility

  • Resident individuals (except Foreign citizens, persons of Indian origin and NRI)
  • Hindu undivided family (HUF)
  • Sole proprietorship
  • Partnership firms
  • Companies including group companies
  • Club, association and society
  • Family trust (except charitable trusts)

Documentation

Following is the list of documents required to avail a loan against property:

  • Single page application form
  • Fixed deposit receipt
  • ECS mandate (only for Non-Cumulative FD)
  • Cancelled cheque (only for Non-Cumulative FD)

Amount of loan

The amount of loan in Loan Against Fixed Deposit ranges from a minimum of Rs. 25000 to Rs 5 crores.

Margin

You can avail a loan of up to 90% of your fixed deposit value

Repayment

The repayment tenure for the loan against fixed deposit ranges between 2 years to 5 years. It also depends on the repayment capacity of the borrower.

LOANS AGAINST RENT RECEIVABLES

Loan against rent receivable provides loans against assignment of future rentals to the residential or commercial property owners to meet their liquidity mismatch. It means that the banks give you a loan against the security of the future rental income from an owned property. This loan can be availed by anyone who owns any kind of property let out on a commercial basis.

The purpose of the loan is to meet the expenses of renovation/alteration/addition to the premises rented and other business/personal needs, but not for speculation purpose.

Features

  • Type of tenants/lessees: The lessees can be of any category/constitution, except individuals. Properties involving lessees, who are reputed corporations/institutions/PSUs/Banks/MNCs, may be preferred.
  • Purpose of the loan: Loan under the Scheme can be considered for different purposes, i.e. for all lawful economic activities as also for personal needs of the lessors. However, the facility should not be extended to any speculative purposes.
  • The processing fees for this loan is around 2% of the loan amount.
  • The tenure of this loan is for a maximum period of 10 years.
  • There are no prepayment charges.
  • Commercial Property (Shops & Offices) leased to reputed lessees can be provided as collateral for a Loan Against Rent Receivables.

Eligibility

Owners of residential buildings and commercial properties which are to be rented or already rented to MNCs / Banks / large & medium size Corporate.

Documents

  • Loan application.
  • Certified Copy of Lease Deed.
  • Proof of income for applicant and lessee.
  • Copy of IT Return.
  • Certified copies of title deeds of the properties leased out and mortgaged, along with latest tax receipts.
  • Copy of approved building plan.
  • Tripartite Agreement amongst the Bank, the borrower and the tenant/lessee providing for payment of the rent directly to the Bank OR Letter from the borrower for collecting rent directly and letter of undertaking from tenant/lessee to pay rent direct to Bank, whenever Tripartite agreement is not feasible.

Insurance

Insurance for full market value of properties in the name of the borrower(s) to be mortgaged to Bank with Bank clause. Insurance to cover risks such as fire, riot, earthquake etc.

Loan Amount

Lowest of :

  • 75% of the realizable value of the property mortgage (as per latest valuation report of the Bank’s approved valuer).
  • Maximum permissible under the Scheme.
  • 75% of [total rent receivable for the residual lease period or loan period, whichever is lower minus the total of an advance deposit, the estimated amount of property tax, service tax, TDS and other statutory dues for the period].

Min: Rs 50,000

Max: In Metros Rs 7.50 Crores

In Non-Metro Rs 5.00 Crores

Margin

The margin for loan against rent receivables is 25% of the loan amount

Repayment

Maximum of 10 years or residual lease period whichever is lower.

Pragati Rajoria

Pragati Rajoria

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About Me

I’m a Commerce Graduate & CFP Professional, engaged in blogging since 3 years. I’m not affiliated with any financial product. The purpose of writing blog is to spread financial awareness and help people in achieving excellence for money. Please note that the views expressed on this Blog/Comments are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment advice or legal opinion.

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