Loan against property or mortgage loan has undoubtedly become a popular source of financing. It allows the borrower to avail huge amounts of funds by leveraging their existing residential, industrial or commercial property as collateral.
Since a loan against property requires security, the borrowers must be extra careful while signing the loan agreement and go through all the charges such as processing fees, part prepayment charges, penal interest, etc. applicable while availing of the loan.
This article aims to explain all such charges associated with a LAP loan.
Loan against property – Interest rate
The loan against property interest rate typically depends upon the total loan amount borrowed and the credit profile of the borrower. The loan against property interest rates start from 8.85% and can go up to 18% depending upon the creditworthiness of the loan applicant and the property value of the collateral provided.
A loan against property is provided at both fixed and floating interest rates depending upon the needs and preferences of the borrower.
Fees and charges on Loan Against Property
The fees and charges on loan against property are given below:
Processing fees
Processing fees refer to a particular amount that the lenders charge for evaluating and processing the applicant’s loan application. This is a one-time fee that the applicants are required to pay.
The processing fee is non-refundable and typically ranges between 0.5% and 3% of the loan amount plus GST. This is often overlooked by borrowers, which shouldn’t be the case. Instead, it should always be taken into account for analysing the cost of theborrowing, especially in the case of big-ticket loans like a LAP loan.
Foreclosure charges
If a loan is closed before the loan tenure ends then the borrowers are required to pay foreclosure charges on the outstanding loan amount. The foreclosure charges levied on the borrower differ from lender to lender.
Mostly these charges range between 2% to 4% of the outstanding loan amount, plus GST.
According to the guidelines of the Reserve Bank of India (RBI), foreclosure charges will not be applicable to individual borrowers who have availed the loan at a floating interest rate and not for business purposes.
However, for individual borrowers seeking a loan at fixed interest rates or joint borrowers (Individuals along with a business entity) seeking a loan with floating rates, foreclosure charges will be applicable.
Legal charges
A loan against property often requires a verification of the property served as collateral. For this, most lenders hire lawyers to conduct the legal verification of the property. The burden of this cost is borne by the borrowers in the form of legal charges. These charges are mostly actual or incidental.
Part-payment charges
Part-payment takes place when the borrower has a substantial amount of idle money less than the outstanding loan amount. The borrower can deposit this idle money into the loan account resulting in a reduction in the principal loan amount.
In such as situation, the borrower is required to pay a part payment charge which usually ranges between 1% to 2% plus GST. The part payment charges are levied if the amount prepaid is more than 25% of the outstanding loan amount during a financial year.
It is essential that the borrowers read the loan agreement carefully for part-payment and prepayment charges.
Security Fees
This fee is usually charged by lenders to enhance the security of your loan account. This includes managing your loan account online, obtaining NOC, keeping a check on EMIs, etc. Many lenders charge this fee to keep your data and other sensitive information safe.
Statement charge
The lenders are obligated to provide monthly interest and principal statements to borrowers, for which they charge a fee. This fee is termed as a statement charge. Different lenders apply different statement charges.
Penal Interest
In case the borrower fails to pay it due to insufficient funds, then lenders impose penal interest charges on the borrower. This is also called late fee charges and is a penalty on the borrowers for missed or unpaid EMI payments.
The penal interest can go up to 2% per month on the overdue instalments.
EMI bounce charges
If a borrower is paying the monthly EMI through a cheque and the cheque gets bounced, then an EMI bounce charge is levied on the borrower. These charges are not levied by all lenders and the charges vary from lender to lender.
Loan rescheduling charges
A Lender might give you the flexibility to increase or decrease the repayment tenure leading to a revision of your monthly instalments. Loan rescheduling charges are applicable in such situations. This often ranges between 1-2% of the principal outstanding or a flat rate per instance.
Stamp duty and other statutory charges
The stamp duty is applied based on the total cost of the property. It is mostly charged as per the applicable laws of the state.
Other statutory levies include registration charges, revalidation of sanction terms, and other miscellaneous fees.
Conclusion
Loan against property serves as a viable solution for individuals seeking immediate funds for various financial needs. However, It is necessary that the applicant seeks beyond just competitive interest rates and takes into account the above charges while applying for a loan against property. One must also carefully go through all the terms and conditions and ensure that all the documents required are in place while submitting the loan against property application.
OneNDF offers loans against property at the best interest rates and flexible repayment tenures. With our end-to-end digital process and expert guidance, we strive to make your loan application process quicker and hassle-free.
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Frequently Asked Questions
What is the interest rate of Kotak Bank for a loan against property?
The interest rate on a loan against property provided by the Kotak Mahindra Bank starts from 9.15% per annum, as on 18th October, 2023.
What is the interest rate for a loan against property in Axis Bank?
The effective rate of interest rates on Axis Bank’s Loan against property is 10.50%-10.95% p.a. for non-PSL category as on 18th October, 2023. The rate of interest is applicable on term loans on floating rates.
Do banks provide commercial property loans?
Yes, the bank provides commercial property loans. One can obtain this by mortgaging a commercial property.
What is the interest rate for a loan against property?
The interest rates for loan against property or mortgage loan starts from 8.85% and goes up to 18%.
What is the LTV ratio in case of a loan against property?
The Loan-to-Value (LTV) ratio in the case of a loan against property is up to 75% of the property value. The LTV ratio depends upon the type of property provided as collateral: residential property, industrial property, or commercial property.
What is the maximum amount that can be availed in a Loan against property?
The maximum amount that can be availed in a Loan against property depends on the market value of the property and the LTV ratio as per the type of property (for example, the LTV ratio could go up to 75% in the case of residential properties but the LTV ratio in case of commercial properties usually ranges between 60-65%).
Which property can be served as collateral while availing LAP?
The property that can be served as collateral while availing loan against property (LAP) comprises industrial, residential, or commercial property.
