A loan against property (LAP) is exactly what the name implies — a loan given or disbursed by mortgaging property. The loan is given as a certain percentage of the property's market value, usually around 40-60 per cent. It belongs to the secured loan category where the borrower provides a guarantee by using his property as security.
The borrower can either opt for an overdraft option where he is required to pay interest only on the amount withdrawn or a lump sum loan amount. The disadvantage of an overdraft facility is that the interest rate charged may be higher, in some cases up to 0.5 per cent and also annual processing fees will be charged. Additionally, only banks can offer the overdraft facility as other financial institutions do not offer savings/current accounts.
In case of a lump sum loan, processing fees are charged only once when the loan is taken and also the individual can approach either a bank or financial institution for the loan.
Long tenure loans: For individuals requiring funding for a long period of time, LAP can come very handy because the tenure of these loans can be a maximum period of 15 years.
Large Loan amount: Individuals requiring substantial funds also should consider this option as a large loan is possible. Of course it depends on the loan against property value. There is no restriction as in case of personal loans where the maximum loan permissible is Rs 10 lakh.
Lower rate of interest: On account of the house being the collateral, the rate of interest charged by banks tends to be much lower than personal loans.
You can normally take a loan against your self-occupied or rented residential property. This could be a house or even a piece of land.