A loan against property (LAP) is often a large loan, so even a small cut in its rate can save lakhs. Some borrowers may be paying well above today's published rates, for example because they are on an older benchmark or took the loan when their credit score was lower. This guide explains how LAP rates are set, how to ask for a cut, when switching lenders pays, and what charges to expect.
What is a loan against property, and how is its rate set?
In a LAP, you pledge a house, flat, shop or other property you own as security (a mortgage). The lender lends you a part of the property's value. You can use the money for personal needs or for business, depending on the loan.
Many bank LAPs are on a floating rate, which moves with a benchmark. The benchmark may be:
- an external benchmark lending rate (EBLR), usually linked to RBI's repo rate (the rate at which RBI lends to banks), which RBI raised to 5.50% on 7 October 2026; or
- the bank's MCLR (marginal cost of funds based lending rate), or an older base rate, which the bank sets itself.
Your rate is the benchmark plus a spread. The spread depends on the lender's view of your risk: your credit score, income, the property and the loan's purpose.
Why do LAP rates vary so much?
Here is one public example. Union Bank of India's rate sheet, effective 8 October 2026, prices its Union Mortgage loan by property type and CIBIL score:
| Property type | CIBIL 800+ | 750–799 | 700–749 |
|---|---|---|---|
| Residential, self-occupied | 9.30% | 9.75% | 10.55% |
| Residential, rented out | 9.55% | 9.75% | 10.55% |
| Commercial or industrial, self-occupied | 9.95% | 10.15% | 10.95% |
| Commercial, leased to third parties | 10.40% | 10.60% | 11.20% |
Lower score bands on the same sheet go up to 11.35%–12.10%. So the same borrower may pay very different rates depending on the property pledged and their score. Rates change often, so check each lender's current page.
Can you ask your current lender to cut your LAP rate?
Yes. Start here, because it is often the cheapest route. There are two common requests.
1. Move from MCLR or base rate to EBLR. RBI's 2025 directions on interest rates on advances for commercial banks say that floating-rate term loans which can be prepaid without charges are eligible to switch to an external benchmark without any charges or fees, other than reasonable administrative or legal costs. The new rate should be the same as for a new loan of the same type, tenor and amount. The switch is not treated as a foreclosure. Other existing borrowers may switch on mutually acceptable terms.
2. Ask for a lower spread. For EBLR loans, RBI's directions say the credit risk premium can change only when your credit assessment changes substantially, as agreed in the loan contract. If your score, income or business has improved since you took the loan, say so in writing. The bank decides.
Example: your bank agrees to cut your ₹60,00,000 LAP from 11.50% to 10.25% for a ₹10,000 fee plus 18% GST (₹11,800). With 144 months left, your EMI falls from ₹76,999 to ₹72,574, a saving of ₹4,425 a month, or ₹6,37,213 over the term. After the fee, that is about ₹6,25,413.
Is switching your LAP to another lender worth it?
Switching (a balance transfer) can cut the rate more, but it costs more too: a processing fee, legal and valuation fees, and stamp duty on the new mortgage, which varies by state. Ask each lender for a full list of charges in writing.
Worked example. You owe ₹60,00,000 at 11.50% with 144 months (12 years) left. A new lender offers 9.75%. The EMI formula is: EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1], where r is the monthly rate (yearly rate ÷ 12 ÷ 100) and n is the months left.
| Item | Amount |
|---|---|
| Current EMI at 11.50% | ₹76,999 |
| New EMI at 9.75% | ₹70,841 |
| Saving per month | ₹6,158 |
| Total EMI saving over 144 months | ₹8,86,774 |
| Processing fee, assumed 1% + 18% GST | ₹70,800 |
| Legal and valuation, assumed | ₹15,000 |
| Stamp duty and mortgage registration, assumed | ₹30,000 |
| Net saving | ₹7,70,974 |
| Break-even (costs ÷ monthly saving) | about 19 months |
The cost figures are assumptions for the example; fees vary. SBI, for instance, lists a LAP processing fee of 1.01% of the loan, capped at ₹50,933.
Keep the old EMI for a bigger saving. If you keep paying ₹76,999 a month at 9.75%, the loan ends in 124 months instead of 144, and you save about ₹15,46,565 in interest instead of ₹8,86,774.
Will you pay a foreclosure charge on your LAP?
This is where LAP differs from a home loan, because many LAPs are taken for business. Under RBI's Pre-payment Charges on Loans Directions, 2025, for floating-rate loans sanctioned or renewed on or after 1 January 2026:
| LAP purpose and borrower | Lender | Pre-payment charge? |
|---|---|---|
| Non-business purpose, individual borrower | Any regulated lender | No |
| Business purpose, individual or micro/small enterprise (MSE) | Commercial banks (except small finance, regional rural and local area banks), Tier 4 urban co-operative banks, NBFC-UL, All India Financial Institutions | No |
| Business purpose, individual or MSE | Small finance banks, regional rural banks, Tier 3 urban co-operative banks, state and central co-operative banks, NBFC-ML | No, if sanctioned amount is up to ₹50 lakh; above that, as per lender policy |
| Fixed-rate loans and other cases | Any regulated lender | As per lender policy, disclosed upfront; for term loans, based on the amount prepaid |
If a charge does apply, it changes the maths a lot. In our example, a 4% charge on ₹60,00,000 plus GST is ₹2,83,200. The net saving falls to ₹4,87,774, and break-even stretches to about 65 months. Check your sanction letter and Key Facts Statement (KFS) before you decide. A charge not disclosed there cannot be levied.
What do lenders check before cutting or taking over a LAP?
Each lender sets its own rules, but these are the usual checks:
- Credit score and repayment record on the current LAP and other loans.
- Income and cash flow: salary slips, income tax returns, bank statements, and for businesses, GST returns and financial statements.
- The property: clear title, approved plans, type (residential or commercial), whether it is self-occupied or rented, and a fresh valuation.
- Loan amount versus property value, and your other EMIs versus your income.
- End use: whether the money is for business or personal needs.
Have these ready before you ask. A clean, complete file makes it easier for a lender to say yes.
What is the best order of steps?
- Find your current rate, benchmark (EBLR, MCLR or base rate), spread and months left.
- Check your KFS or sanction letter for any pre-payment or conversion charges.
- Check your credit report for errors and fix them first.
- Write to your current lender asking for EBLR conversion or a lower spread.
- At the same time, ask two or three other lenders for written offers with all fees.
- Compare net savings and break-even months, then decide.
Do it in 10 minutes, free
Use the LowerMyEMI balance transfer (switch) calculator. Enter your LAP balance, rate, months left, the new offer and all fees. It shows your net saving and break-even month, with Excel or PDF export.
Then LowerMyEMI can write a letter to your own lender asking for a lower rate or EBLR conversion, and one email per lender asking for its offer. You send them from your own email. We are not a lender and never promise a rate; each lender decides.