A Loan Against Property or LAP is a loan which can be availed against one’s owned residential, commercial or rented property. A loan balance transfer, on the other hand, is a way of transferring one’s existing and the balance part of a loan from the current lender to a new one given that one has been with the current lender for at least a 12-month period paying EMIs. Thus, a Loan Against Property balance transfer is a method by which one can use a LAP to transfer one’s balance loan to a new lender.
What propels a borrower to want to transfer their loan balance to a new lender? Here are some of the reasons:
- Dissatisfaction with the customer service at the existing lender, starting from uncooperative staff, delayed issue resolution, hidden charges, etc.
- Availability of a cheaper loan in the market, on balance transfer, at a lower interest rate, easing the EMI burden of the borrower.
- Lesser or no charges on transfer, processing, pre-foreclosure, better and more customer-friendly policies of the new lender, less burdensome paperwork, faster TATs, etc.
- The expiry of the lock-in period with the current lender, who has failed to live up to expectations of superior service standards and did not relent to a request to reduce the interest rates on the loan.
We must now evaluate the eligibility criteria affecting balance transfer using Loan Against Property EMI calculator. The factors impacting this calculator are as follows:
- The most important factor determining LAP balance transfer eligibility is the contemporary actual market valuation of the property being used as collateral. It in direct proportion impacts the sanctioned loan sum. The higher the current market value of the property in question, the greater is the borrower’s eligibility. Lenders generally sanction a sum of loan which is 60% in value of the existing commercial value of the mortgaged property.
- Arguably, the second most significant criterion is the applicant’s income, its stability, and regularity. Higher incomes attract higher loan sums. Simultaneously, the borrower’s job is of great meaning. Employment with an MNC or with the government job is looked at favourably as also being self-employed with a successful record of profitability.
- The applicant’s credit or CIBIL score holds great significance. While income and property value are important for loan sum, CIBIL score is important to ascertain the Loan Against Property interest rate. The CIBIL score is a reflection of an applicant’s history of borrowing and repayment, payment defaults (if any), discipline in paying the outstanding credit card dues in full, timeliness in repayment of EMIs on past or current loans. 700 and above is considered to be an industry standard of being an optimum CIBIL score. Even a single default in payments on time, can impact this score adversely.
- The younger is the borrower, the better is their loan tenor, interest rate, and sum disbursed. Typically, a LAP has a mid to long term tenor (1 to 20 years).
- The eligibility is further impacted by the size of the family and number of dependents, existence of other earning members, and educational qualification.
- The investment portfolio of an individual affects their eligibility. It is recommended to skew more funds towards options with stable returns, such as PPF, government bonds, debt funds, than in riskier options like equity.
- The repayment history till date, on the loan being transferred, with the existing lender.
- Documents needed towards ascertaining eligibility are as follows:
- Personal identity and address proofs such as PAN, Aadhar, voter’s card, passport, etc.
- Proof of income such as IT returns, salary slips, or income proof of the immediately preceding six months, educational certificates
- Proof of ownership such as sale deed, registration certificate, tax receipts, occupancy certificate, etc.
- An NOC from the existing lender permitting the transfer, and disclosing the list of documents with them, while also specifying the loan balance amount and existing interest rate.
Once the above have been received by the new lender along with the application for a Loan Against Property balance transfer, due diligence is carried out by the new lender. Data extracted from these documents are input into the eligibility calculator. Once the verification is done to their satisfaction, a loan sum is disbursed on the basis of an LTV or a Loan to Value ratio. This is where an applicant has the scope to negotiate with the new lender on a lower interest rate, and/or a higher disbursal sum. This value changes from one lender to another and largely is a result of their own internal valuation of the collateral. As long as the applicant has the optimum credit score, stable income trends, a marketable valuation of the mortgage, and maintains good financial hygiene, there is scope to negotiate the rates. It is absolutely fine to try and get the best rate possible for one’s Loan Against Property balance transfer for that is ultimately the sole objective of undertaking the exercise.