Introduction
Getting a loan these days, in times of need, is quite easy. However, if you are in the market for loans, you will come across multiple terms you have never heard of. One such confusion happens concerning the terms ‘Home Loan’ and ‘Loan Against Property (Also called Mortgage Loan).
Simply put, a home loan is a loan you take when you buy property, such as – ready to move-in house, land, house under construction, etc. It is usually a secured loan, and the borrower needs to give a down payment. You can choose a fixed or floating rate of interest plan, and the loan needs to be repaid in monthly EMIs.
A loan against property, in essence, is also a secured loan in which you pledge your property as collateral. The borrower gives his property documents to the loan provider, and it stays with them until you repay the loan in full. A loan against property interest rate starts from 7.25% p.a.
Let Us Compare These Loans In Detail
Usage
The usage of home loans is limited to buying a property. You can buy a ready flat, land, or house under construction – that’s all. But you can use a loan against property for whatever you want. You can use it for personal reasons, such as – health issues, education, business expansion, etc.
Repayment Tenure
There is a vast difference in the repayment tenure offered for home loans and loans against property. Home loans typically give you a tenure of 20 to 30 years. However, a loan against property can give you 15 years for repayment. Many providers offer online home loan repayment calculator to ease the repayment process. These calculators can help determine your EMI and aid in planning your cash flow for easy repayment.
Property Value
Here, the loan against property falls behind a home loan. The loan against property grants only around 60% of the value of the pledged collateral. A typical home loan gives you nearly 90% of the property value.
Interest Rate
One of the main differences is in the rate of interest charged. A loan against property interest rate is usually more than the interest rate on home loans due to a higher default rate. The RBI also has a role to play here. They are in a constant endeavour to make housing affordable for everyone. Hence typical home loan interest rates cannot be too high.
Documentation Process
A home loan is usually sanctioned within 15 days of document submission.
In contrast, a loan against property requires more processing time. The lending institution must get your property valued and conduct a thorough background check before sanctioning a loan.
Tax Exemption,
The biggest difference between both loans is the tax exemption that can be availed. Loans against property offer no tax exemption.
On the other hand, a home loan can give the borrower tax benefits under sections 80C and 24. You are eligible for tax deductions under section 24 (b) in loan against property, if you use the amount to fund your new house/property.
Top-Up Option
Most loan providers also offer an option of a top-up. If required, you can avail of more finance on your present loan against property. It also allows you to use the same loan for different purposes without running around to another provider. Typically, a home loan does not offer this facility. But these days, some banks and providers offer similar assistance after a thorough assessment.
At a Glance
| Features | Home Loan | Loan Against Property |
| Usage | Only for property purchase | Can be used for anything |
| Repayment Tenure | 20 to 30 years | Maximum 15 years |
| Percentage Value | Around 90% of property value | Around 60% of property value |
| Interest Rate | Lesser than LAP | More than Home Loan |
| Documentation Process | Relatively Simple | Takes More Times |
| Tax Exemption | Available under 80c and 24b | Available under 24b if use the amount to buy a house. |
| Top-Up Option | Usually Not Available | Available |
Conclusion
There is enough and more information about both these loans online. You must do your homework and compare different loan providers’ features. Make sure to use a home loan repayment calculator to know how to manage your cash flows before taking a loan. It depends completely on your usage. A loan against property interest rate is high, but it is flexible to use per your needs. Home loans come with limited usage. Do your research, compare options, and make an informed choice.
