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How to get loan against home

BS Reporter in Mumbai | December 15, 2008 11:37 IST

If you are looking to raise cash, your property can be a good option. It is cheaper than a personal loan because most banks are more comfortable with the collateral of a property. So, for instance, if a bank is charging 18-20 per cent for a personal loan, a loan against property can be got for 14-15 per cent.

The loan amount sanctioned depends on a host of factors. Primarily, it depends on your income, the cost of the property to be mortgaged and repayment track record. While the eligibility criteria will vary from one bank to another, here are some basic guidelines.

Salaried individuals: Eligibility criteria for salaried employees are broadly along the following lines:

  • Minimum age of applicant: 21 years
  • Maximum age of applicant at the time of loan maturity: 60 years
  • Minimum net monthly income: Rs 12,000 a month

Self-employed individuals: Broad eligibility criteria for self-employed employees:

  • Minimum age of applicant: 21 years
  • Maximum age of applicant at the time of loan maturity: 65 years
  • Minimum annual income: Rs 1,50,000 a year.

Loan amount: The loan is given as a certain percentage of the property's market value (usually around 40-60 per cent). But the threshold amount too is generally defined by most lending institutions, say a minimum of Rs 25,000 and a maximum of Rs 1.5 crore (Rs 15 million).

Tenure of work experience: If you are salaried/self-employed, banks take into account the number of years you have remained in service/profession.

Repayment capacity: The lender evaluates your repayment capacity based on your income, savings and debt obligations, other than household expenses.

Based on this information, the lender decides on the amount of loan that you are eligible, after considering your previous debts and obligations.

When applying for a loan, it is important to be aware of the fine print. For example, the processing and prepayment fees are less in the case of a loan against property than that of a personal loan.

Here is a list of all charges that are levied either before the loan is disbursed or through the course of the loan or when you terminate the loan:

Description of charges:

  • Processing fee
  • Pre-payment fee
  • Charges for changing from fixed to floating rate of interest
  • Charges for changing from floating to fixed rate of interest

Processing fee: The processing fee is the amount charged by banks to cover the cost of processing your loan application. Processing fees vary from one bank to another. Some banks ask you to pay the processing fee upfront even before the loan is sanctioned. This is often charged when you submit your loan application along with the supporting documents.

The processing fee is generally a percentage of the loan amount and is between 0.25 and 2 per cent for a loan against property.

Pre-payment fee: The pre-payment fee is the penalty paid by the borrower for foreclosing the loan before the actual tenure. Pre-payment fees are levied as a percentage of the outstanding principal of the loan amount. It varies from 1-4 per cent of the outstanding loan amount, if the repayment amount exceeds 25 per cent of the outstanding loan amount.

There are a few banks that allow you to pre-pay the loan if you have funds without charging you any penalty. Ideally one should opt for a lender that does not charge a pre-payment penalty.

Charges for changing from fixed to floating rate of interest: This is a charge wherein you are charged for switching your interest rate from fixed to floating rate of interest. It is levied as a percentage of the outstanding principal of the loan amount. The charge varies from 0.25-2 per cent.

Charges for changing from floating to fixed rate of interest: This is a charge wherein you are charged for switching your interest rate from floating to fixed rate of interest. It is levied as a percentage of the outstanding principal of the loan amount. The charge varies from 1-2 per cent.

There are banks that also have others charges such as charges for late payment of EMI, duplicate no-due certificate/NOC, cheque-swapping charges, bounced cheque charges, statement charges (per statement), duplicate repayment schedule charges.


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