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The following are the fact to know about Loan Against Property:
1. Floating rate of interest is applicable:
Typically, lenders charge a floating rate of interest on LAP throughout the tenure of the loan. Unlike in case of a home loan where a fixed rate of interest can be charged, LAP charges a floating rate of interest only.
Currently, the interest rate charged by a lender on LAP is between 12% — 14% (April 2010) but this can vary depending from lender to lender. Ideally, you should understand from the lender at the time of applying for the loan what the interest rate could float to if rate changes were to occur.
2. LAP against an already mortgaged property:
If you have a property on which you already have a home loan outstanding, you can still take a LAP on the same property.
However, certain restrictions might apply such as you might be able to apply for a LAP only within a certain time limit set by the lender. Additionally, your ability to take LAP might be influenced by factors like:
a) Eligibility: If the value of the house increases between the times that you buy it through a home loan and when you take a LAP, then you can be entitled to take LAP of up to 60% of the market value of the property.
b) Down payment: In case you have paid more towards the down payment and taken a lesser amount of loan when taking the original home loan, you can qualify to obtain LAP for a higher value.
3. No tax exemption:
LAP is not eligible for any tax benefits or deductions. However, you can continue to claim the available tax exemptions if you have an existing home loan on the same property against which you have taken a LAP.
4. No charge on part or full repayment:
Typically, lenders do not levy any prepayment charges for LAP. However, you must confirm with the lender whether they levy any penalty fee on part or full repayment of LAP. The information about any charges will be mentioned in your loan documents.
If there are multiple owners of the property, they all need to be co-applicants when applying for a LAP, because the lender needs to be certain that all owners of the property have agreed to offer the property as security to take the loan.
However, you can also include your spouse or child, even if they are not a co-owner of the property as a co-applicant for the loan, to help improve your eligibility.