Should Senior Citizens Take A Loan Against Property? 5 Things To Consider

A loan against property (LAP) is a secured, collateral-based mortgage that senior citizens can use to meet their needs

Outlook Money
November 20, 2023
Loan against property (LAP)

Loan against property (LAP)

Senior citizens can avail of a loan against property (LAP), including a self-occupied or rented-out house or a land plot, when in need of funds during medical emergencies, children’s education and marriage, home renovation, etc. While other secured and unsecured loan options also exist, LAPs can be availed of when there is a requirement for large sums of money due to a high collateral value. While a personal loan is easy to avail with minimal paperwork, the interest rate is high as it is unsecured. A gold loan is also an option, but it will require significant gold deposits as collateral to get a high-value loan. So, if you have a property, LAP will work for you better as it has low-interest rates, and the money can be used for various purposes.


Let us see what seniors should consider when availing of a loan against property. Usually, the maximum limit for LAP is Rs 5 crore, but a few banks offer up to Rs 7.5 crore. Also, it can be a loan-term loan. For example, the State Bank of India offers LAP for 15 years; individuals up to age 70 can avail of these loans. However, the loan tenure and the maximum age limit may vary from one bank to another.

Here are five points seniors should remember when applying for a LAP.

Interest Rates: 

When taking any loan, the first thing to consider is the interest rates. It could differ from one bank to another. For instance, SBI charges around 10.90 per cent to 11.10 per cent for LAP. ICICI Bank’s interest rates range from 11.35 per cent to 12.00 per cent, depending on the loan amount and the borrower’s status as salaried or self-employed. Federal Bank charges 12.60 per cent onward for the loan against property.

Thus, seniors must check with their bank for the exact interest for the amount they require and find out the lowest rates available in the market for LAP. The interest rate on the loan would depend on the loan amount, tenure, credit score, etc.

Amount Of Loan: 

The loan amount or the loan-to-value (LTV) ratio could also differ from bank to bank. However, typically, it could be from 50 per cent to up to 80 per cent of the property value. Other factors, such as credit score, age, and other individual liabilities, can also affect the loan amount. In the case of SBI, the LTV could be 65 to 60 per cent for Rs 1 crore and Rs 1 crore to Rs 5 crore loans, respectively. So, one may choose a bank offering a higher LTV.

Loan Tenure: 

Most banks typically offer LAP for 15 years, but a few offer up to 20 years. The point is that the longer the tenure, the lower the equated monthly instalment (EMI), means higher interest payments. A loan for the short term means a high EMI. While seniors may not need a loan for a long tenure, they may choose a tenure that suits their requirements for EMIs and interests.

Processing Fees And Other Charges: 

The processing fee is another factor to consider before availing of the loan. It differs from bank to bank and also from property to property. For example, as per its website, SBI charges 1 per cent of the loan amount plus service tax as a processing fee. The maximum amount it can charge as a processing fee is Rs 50,000 plus service tax. Likewise, Canara Bank’s processing fee is 0.50 per cent of the loan amount with a minimum of Rs 5,000. The bank also charges Rs 100 per lakh with a minimum of Rs 1,000 and a maximum of Rs 25,000 as documentation charges, as per the bank’s website.

So, compare the processing fee and all the other charges before finalising the financial entity from which you are taking the loan.

Ownership Of Property: 

While taking the loan, the property is mortgaged to the lender, but the ownership remains with the borrower. If the property is jointly owned by the spouse or someone else, one must ensure that all the property owners agree on the loan. The property should not be disputed, or the bank will deny the loan.

As LAP offers lower interest rates than unsecured loans and almost all the banks offer these loans, it is easy to avail; seniors should plan so they don’t get into the debt trap and can repay as soon as possible.

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