Loan Against Property (LAP): Complete Guide
Everything about Loan Against Property in India - eligibility, interest rates, LTV ratios, documentation, and strategies for using your property as collateral.
9 min read
Loan Against Property (LAP): Complete Guide
Loan Against Property (LAP) allows you to leverage your real estate assets to access substantial funds at lower interest rates than unsecured loans. Whether for business expansion, education, medical emergencies, or debt consolidation, LAP is a powerful financial tool. This guide covers everything you need to know.
What Is Loan Against Property?
Definition
A Loan Against Property is a secured loan where you mortgage your residential or commercial property to the lender. The property serves as collateral, enabling you to borrow a significant amount at attractive interest rates.
How It Works
Step 1: Property valuation by lender
Step 2: Eligibility assessment (income + property)
Step 3: Loan amount determined (60-70% of value)
Step 4: Property mortgage registered
Step 5: Loan disbursed
Step 6: EMI repayment (5-20 years)
Step 7: Mortgage released after full repayment
Key Features
| Feature | Typical Range |
|---|---|
| Loan Amount | ₹5 lakhs - ₹10 crores |
| Interest Rate | 8.5-14% |
| LTV Ratio | 50-70% |
| Tenure | 5-20 years |
| Processing Fee | 0.5-1.5% |
| End Use | Multipurpose |
Loan-to-Value (LTV) Ratios
Maximum LTV Allowed
Property Type and LTV:
- Residential Self-Occupied: 60-70%
- Residential Rented: 55-65%
- Commercial: 50-60%
- Industrial: 50-55%
- Plot/Land: 40-50%
LTV Calculation Example
Property Market Value: ₹1,00,00,000
LTV Ratio: 60%
Maximum Loan: ₹60,00,000
Distress Value (conservative): ₹80,00,000
LTV on Distress: 75%
Maximum Loan: ₹60,00,000 (consistent)
Factors Affecting LTV
Property Factors:
- Location (prime areas: higher LTV)
- Age of building
- Title clarity
- Legal clearances
- Marketability
Borrower Factors:
- Income stability
- Credit score
- Existing obligations
- Repayment capacity
Interest Rates (2024)
Current Rate Ranges
| Lender Type | Rate Range |
|---|---|
| Public Banks (SBI, BOB) | 8.5-10.5% |
| Private Banks (HDFC, ICICI) | 9-12% |
| NBFCs | 10-14% |
| HFCs (HDFC Ltd, LIC HFL) | 9-11% |
Fixed vs. Floating Rates
Floating Rate (Most Common):
Features:
- Linked to RLLR/repo rate
- Changes with market conditions
- Lower starting rate usually
Example:
Current: 9.5%
If repo rate increases 0.25%: 9.75%
Fixed Rate:
Features:
- Rate unchanged during tenure
- Higher than floating at start
- Predictability of EMI
Available:
- Some NBFCs offer
- Usually 1-2% higher than floating
Factors Affecting Your Rate
| Factor | Impact |
|---|---|
| Credit Score 750+ | Lowest rates |
| Credit Score 700-750 | Moderate rates |
| Income Stability | Better rates for salaried |
| Property Type | Residential: better than commercial |
| LTV Ratio | Lower LTV: better rate |
| Loan Amount | Higher amount: slight discount |
Eligibility Criteria
For Salaried Individuals
| Requirement | Typical Criteria |
|---|---|
| Age | 21-60 years (at maturity: 65-70) |
| Employment | Min 2-3 years current employer |
| Income | ₹25,000+ monthly |
| Credit Score | 700+ preferred |
| Property | Clear title, no litigation |
For Self-Employed
| Requirement | Typical Criteria |
|---|---|
| Age | 21-65 years (at maturity: 70) |
| Business Vintage | 3+ years |
| ITR | 2-3 years filed |
| Turnover | Varies by lender |
| Credit Score | 700+ preferred |
FOIR (Fixed Obligation to Income Ratio)
FOIR Calculation:
(All EMIs + LAP EMI) / Gross Monthly Income < 50-65%
Example:
Gross Income: ₹1,00,000
Existing EMIs: ₹25,000
Max LAP EMI: ₹35,000 (at 60% FOIR)
Property Eligibility
Acceptable Properties
Residential:
✓ Self-occupied house
✓ Rented house
✓ Flats/apartments
✓ Independent houses
Commercial:
✓ Office spaces
✓ Shops
✓ Commercial complexes
✓ Warehouses
Land (Limited):
✓ Urban plots (some lenders)
✓ Agricultural land (rare)
Property Requirements
Clear Title:
- Proper ownership documents
- No legal disputes
- No encumbrances
- All NOCs available
Age and Condition:
- Building age usually <40 years
- Good structural condition
- Approved by development authority
- Proper occupancy/completion certificate
Documents for Property
Essential:
- Original title deed/sale deed
- Previous chain of ownership
- Approved building plan
- Occupancy certificate
- Property tax receipts
- Society NOC (if applicable)
- Encumbrance certificate
Documentation Required
Salaried Applicants
Identity & Address:
- Aadhaar, PAN
- Passport, Voter ID
Income Proof:
- Salary slips (6 months)
- Bank statements (6-12 months)
- Form 16 (2 years)
- Employment letter
Property Documents:
- All documents as listed above
Self-Employed Applicants
Additional Documents:
- ITR (3 years)
- Balance sheet, P&L (3 years)
- GST returns
- Business registration
- Bank statements (12 months)
- Business address proof
The LAP Process
Timeline Overview
| Stage | Duration |
|---|---|
| Application | 1-2 days |
| Document Collection | 1-2 weeks |
| Property Valuation | 3-5 days |
| Legal Verification | 1-2 weeks |
| Sanction | 3-5 days |
| Disbursement | 3-7 days |
| Total | 3-6 weeks |
Step-by-Step Process
Step 1: Application
- Choose lender
- Fill application form
- Submit initial documents
- Pay processing fee
Step 2: Property Valuation
- Lender appoints valuer
- Site visit conducted
- Market value assessed
- Report submitted to lender
Step 3: Legal Verification
- Lender's lawyer reviews title
- Chain of ownership checked
- Encumbrances verified
- Legal opinion provided
Step 4: Credit Assessment
- Income verification
- Credit score check
- FOIR calculation
- Final eligibility determined
Step 5: Sanction
- Loan amount approved
- Terms finalized
- Sanction letter issued
- Customer accepts
Step 6: Disbursement
- Property mortgage registered
- EMI mandate set up
- Loan disbursed to account
Costs and Charges
Processing Fee
Typical Range: 0.5-1.5% of loan amount
Example:
Loan: ₹50,00,000
Fee (1%): ₹50,000
Negotiation: Often possible, especially for existing customers
Other Charges
| Charge | Typical Amount |
|---|---|
| Valuation Fee | ₹2,000-5,000 |
| Legal Fee | ₹5,000-15,000 |
| Stamp Duty | Varies by state |
| Mortgage Registration | 0.1-0.5% of loan |
| Documentation | ₹1,000-5,000 |
| Prepayment | Nil (floating) / 2-4% (fixed) |
| Part-Payment | Usually free |
Stamp Duty Variations
Maharashtra: 0.3% (loan deed)
Karnataka: 0.5%
Tamil Nadu: 1%
Delhi: 0.1%
Check state-specific rates - significant cost!
Repayment Structure
EMI Calculation
Formula: EMI = P × r × (1+r)^n / [(1+r)^n - 1]
Example:
Loan: ₹50,00,000
Rate: 10%
Tenure: 15 years
EMI = ₹53,729
Total Repayment: ₹96,71,220
Total Interest: ₹46,71,220
Tenure Options
| Loan Amount | Typical Max Tenure |
|---|---|
| Up to ₹50 lakhs | 15-20 years |
| ₹50 lakhs - ₹1 crore | 15-18 years |
| Above ₹1 crore | 15 years |
Prepayment Strategy
Loan: ₹50,00,000 at 10% for 15 years
Regular EMI: ₹53,729
Annual Prepayment: ₹1,00,000
Impact:
- Tenure reduces by ~3 years
- Interest saved: ₹12+ lakhs
- Total payment reduced significantly
Floating Rate: No prepayment charges!
LAP vs. Other Loans
LAP vs. Personal Loan
| Factor | LAP | Personal Loan |
|---|---|---|
| Interest Rate | 9-12% | 12-18% |
| Loan Amount | ₹5L-10Cr | ₹50K-50L |
| Tenure | 5-20 years | 1-5 years |
| Collateral | Required | None |
| Processing Time | 3-6 weeks | 1-7 days |
| Documentation | Extensive | Moderate |
Choose LAP When:
- Need large amount (₹10+ lakhs)
- Can offer property
- Want lower EMI
- Long repayment needed
LAP vs. Home Loan
| Factor | LAP | Home Loan |
|---|---|---|
| Purpose | Any | Home purchase only |
| Interest Rate | 9-12% | 8.5-10% |
| Tax Benefit | Limited | Sec 80C + 24(b) |
| LTV | 60-70% | 75-90% |
LAP vs. Gold Loan
| Factor | LAP | Gold Loan |
|---|---|---|
| Amount | Higher | Limited by gold |
| Rate | 9-12% | 7-12% |
| Processing | 3-6 weeks | Same day |
| Tenure | Up to 20 years | 1-3 years |
| Risk | Property | Gold |
Risks and Considerations
Risk 1: Property at Stake
Reality:
- Default = Property auction
- Lender can sell without court order (SARFAESI)
- You lose property and any equity
Mitigation:
- Borrow only what you can repay
- Maintain income stability
- Have backup repayment plan
- Don't over-leverage
Risk 2: Longer Debt Burden
15-year LAP:
- Committed for 180 months
- Life changes during tenure
- Interest cost significant
Consideration:
- Plan for income continuity
- Consider shorter tenure
- Prepay when possible
Risk 3: Floating Rate Uncertainty
Scenario:
Initial EMI: ₹50,000
Rate increases 2%: EMI ₹57,000
Monthly Impact: ₹7,000 more
Annual Impact: ₹84,000 more
Mitigation:
- Keep buffer in budget
- Consider rate-capped products
- Prepay during low-rate periods
Risk 4: Property Value Decline
If Property Value Falls:
- LTV increases
- Lender may ask for top-up collateral
- Or partial prepayment
- Unlikely in prime locations, but possible
Tax Benefits
Interest Deduction (If Business Use)
For Business/Profession:
- Interest is business expense
- Deductible from business income
- No upper limit
Documentation:
- Loan used for business purpose
- Clear trail of fund usage
No Benefit for Personal Use
LAP for personal use:
- Wedding, travel, consumption
- NO tax benefit on interest
- Unlike home loan
Important:
- Document loan purpose clearly
- Maintain fund utilization proof
Use Cases for LAP
Good Uses
Business Expansion:
- Working capital
- Equipment purchase
- Inventory
- New branch setup
Education:
- Higher studies abroad
- Professional courses
- Children's education
Medical Emergency:
- Major surgery
- Long-term treatment
- Not covered by insurance
Debt Consolidation:
- Pay off high-interest debt
- Credit card, personal loans
- Lower overall interest
Questionable Uses
Think Twice Before LAP For:
- Lifestyle expenses
- Speculative investments
- Non-essential purchases
- Starting unproven business
Why:
- Property at risk
- Long-term debt burden
- Better alternatives may exist
Getting the Best Deal
Comparison Strategy
Compare Across:
1. At least 4-5 lenders
2. Banks + NBFCs + HFCs
3. Online aggregators for quotes
Compare:
- Interest rate (effective)
- Processing fee
- Other charges
- Prepayment terms
- Customer service
Negotiation Tips
Points to Negotiate:
1. Interest rate (0.25-0.5% possible)
2. Processing fee (waiver or reduction)
3. Documentation charges
4. Better LTV (if strong profile)
When to Negotiate:
- End of quarter (targets)
- If you have multiple quotes
- Existing customer status
- Strong credit profile
Documentation Preparation
Before Applying:
□ Gather all property documents
□ Get encumbrance certificate (15-30 years)
□ Clear pending property taxes
□ Resolve any title issues
□ Arrange income documents
□ Check credit report for errors
Post-Disbursement Tips
During Loan Tenure
✓ Set up ECS/autopay
✓ Keep buffer in account
✓ Track EMI payments
✓ Review rate changes annually
✓ Prepay when possible
✓ Keep property documents safe
✓ Maintain property (lender's interest)
After Full Repayment
Closure Steps:
1. Get NOC from lender
2. Remove mortgage from property records
3. Collect original documents
4. Verify title is clear
5. Keep closure certificate safely
Conclusion
Loan Against Property is a powerful financial tool that can unlock the value in your real estate. With lower interest rates than unsecured loans and longer tenures, LAP makes large funding needs manageable. However, the key is using it wisely—borrowing for productive purposes and ensuring consistent repayment.
Key Takeaways:
- Leverage your asset wisely—LAP is not free money
- Borrow for productive use—business, education, consolidation
- Don’t over-leverage—maintain LTV buffer
- Compare extensively—rates and terms vary significantly
- Prepare documents well—speeds up process
- Prepay when possible—save substantial interest
- Property is at risk—never forget this reality
Your property represents years of savings and effort. Use LAP strategically to enhance your financial position, not undermine it.
Loan terms, rates, and processes change frequently. Always verify current offerings directly with lenders. This guide provides general information for educational purposes.