If you have a significant financing need, like financing a college education or a child’s marriage, starting a business, or facing a medical emergency, a home loan (LAP) might be a viable option for you. These securitized loans could offer a higher loan amount at lower interest rates than unsecured loan products like a personal loan.
That being said, there are a few important things to keep in mind before you go for an expensive financing arrangement, like a loan against a property. First, most lenders typically sanction a loan amount of up to 75% of the current market value of the pledged property. However, you should not overborrow just because you qualify for a larger loan amount and meet your exact financing needs so that it is easier for you to write off your entire loan on time. All of your debts combined should ideally not exceed 50% of your household income.
Second, although it is a secured loan product, your income and credit rating are taken into consideration when sanctioning a loan against a property. This means that you will only get the best loan deals when you have sufficient income (allowing you to pay off on time) and a credit score of over 750-800. Third, your loan application could be rejected. There is no absolute clarity on the ownership of the pledged property, whether the documents are not in order or whether the property is in a state of disrepair, according to BankBazaar.
You will also be well advised to compare your options between different lenders to find the best loan deal. In doing so, check things like the applicable interest rate, minimum and maximum loan amount allowed, flexibility of loan term, ease of loan processing, processing fees, prepayment charges and pre-closing (if applicable), late penalties, etc. The terms and conditions associated with a home loan may differ from lender to lender, so you should gain complete clarity on the features applicable to your LAP before finalizing your decision.
To help you make informed decisions, here are the lowest advertised interest rates for a loan amount of up to Rs 10 lakh which are currently offered by all BSE listed public and private banks in the country. We have also provided indicative EMIs for an LAP of Rs 10 lakh with a 5 year term for each of the banks – including SBI, HDFC and ICICI Bank – mentioned in the table below.
Note that the interest rate applicable to you may be higher depending on the amount of your loan, the value and condition of your property, the LTV ratio, age, income, rating credit, tenure or any other condition of the lender you have chosen.
Indicative interest rate and IME on a loan against a property of Rs 10 lakh for a period of 5 years
Disclaimer: The interest rates on the LAP for all public and private listed banks (ESBs) have been taken into account for the compilation of the data. Banks whose data is not available on their website are not taken into account. Data collected from respective bank’s website on March 16, 2021. Banks are listed in ascending order based on interest rate. The lowest interest rate offered by banks on loans up to Rs.10 lakh and with a term of up to 5 years is shown in the table. * The IMEs were calculated based on the interest rate mentioned in the table for Rs. 10 lakh LAP with a term of 5 years (processing fees and other charges are assumed to be zero for the calculation of EMI) . The interest rates mentioned in the table are indicative and they may vary according to the T & Cs of the bank. Data compiled by BankBazaar.com, an online marketplace for loans, credit cards and more.