Understanding Loan against Property Interest Rates and Charges

A loan against property, or LAP, is one of the most popular loan types; mainly because it sets no restrictions on the borrower regarding how to utilise the funds. But, just as every desirable product comes with a cost, even LAP is no exception. Availing of a LAP involves some nominal fees and small charges towards loan processing, property verification etc. These charges are usually small amounts when compared to the big benefits of LAP, and help in making the process smoother and hassle-free for both, the lender and borrower.
 
For better understanding, let us take the example of ex-army officer Srikant Krishnamurthy, a devout family man. Post-retirement, he learned about his wife’s life-threatening illness. He put all his retirement funds into his wife's treatment but it was not enough. Desperate to raise funds, he decided to take a loan on his property. By paying small sums of money as charges for loan processing and verification of his property and related documents, he was able to avail of a LAP instantly. With enough money in his pocket and a moderate EMI for loan repayment, Srikant managed to sail through the situation.

 

Knowing the nitty-gritty of the loan against property interest rates and the fees associated with availing of the loan beforehand can help you save valuable time at the time of need.
 
Types of Interest Rates 

• Fixed Interest Rate: It is a set or fixed rate of interest attached to your loan against residential property or commercial property that must be repaid along with the principal loan amount. It is simple to calculate as the EMI amount remains constant during the whole repayment tenure. Both the borrower and the lender are aware of the interest rate obligations associated with a loan.
   
• Floating Interest Rate: The floating interest rate changes with a change in the market conditions. As the interest rate changes, the EMI also keeps on changing. The lender calculates the interest rate using a base rate or index rate established by the RBI. As a result, when the base rate rises, the floating rate goes up and vice versa.

If you want to keep track of your EMIs and interest rate, you may use a loan against property calculator.
 
Also Read: Top Mistakes to Avoid While Taking a Loan Against Property 

Charges Attached to Loan Against Property

• Processing Fees: Whenever you apply for a loan against property, your lender may charge you with one-time loan processing fees. Lenders charge this fee to cover carrying cost, administrative cost, cost of accessing your property's worth and more. This fee could range from anywhere between 0.5% to 2% of your loan amount, plus GST. 

• Legal Charges: Before granting a loan against your property, the lender verifies all the property-related documents. They also assess the risk involved in the applicant's profile with the help of legal documentation and by verifying the property by sending their executive to the property site. The legal charges can be anywhere between Rs5,000 to Rs 10,000. 

• Foreclosure Charge: Lenders usually charge a foreclosure fee if a borrower closes his loan before the expiry of repayment tenure. The fees could be anywhere between 1% and 4% of the amount you are paying. 

• Part-Prepayment Charge: If you plan to prepay an amount bigger than your EMI then, similar to a foreclosure charge, the lender may levy fees on your part prepayment amount. This differs from one lender to the other; some may not even charge for this though.

 
Also Read: Quick Guide to Mortgage Loans

• Penalty Charge: For some reason, if a borrower fails to repay their monthly EMI, the lender can impose a penalty on them. Usually, the penalty or default charge is 2% monthly or 24% per annum on the overdue amount.This may vary from lender to lender.

• EMI Bouncing Charge: Nobody wants to be in a situation where their signed cheque gets bounced due to insufficient funds. However, being a borrower, if the same happens to you during your LAP EMI payment, your lender can ask for a bouncing charge. The usual charges are around Rs 600- 700 plus GST, but this too differs from lender to lender. 

• Loan Rescheduling Charge: Loan rescheduling means extending or adding time to your existing loan term. It results in a change in your monthly instalment amount, allowing you to pay a smaller amount each month. However, doing so attracts a rescheduling charge levied by a lender. This again may vary from lender to lender.

Apart from the above-mentioned charges, your lender may charge you for loan statements, non-compliance, issue of duplicate NOC etc. Always keep in mind that the above charges are not included in your mortgage loan rate of interest.
 
Also Read: Loan Against Property vs. Personal Loan 
 

To Conclude 

Understanding various charges associated with LAP is just as necessary as knowing details such as loan against property eligibility and loan against property documents required. As the EMI calculator for LAP will not tell you about the fees, it is better to check the same on the lender's website or ask them directly. To make the most of your LAP without disturbing your monthly budget, you must know about the charges beforehand.