No matter how different loan against property and home loan sounds, people tend to get confused between the two. Here we cannot also say that there is a thin between the two because the purpose of the two loans is different. A home loan is taken by a borrower when he wants to buy a plot, construct a home or buy a flat. Whereas loan against property is taken for any purpose, it can be personal or business where you have to keep any of your property or any other asset as collateral. Let’s discuss the difference between the two in detail:-
What is Loan against Property?
The debt instrument under which the property is mortgaged for a certain amount is known as Loan against property or mortgage loan. It can be availed against the residential as well as the commercial property.
What is a Home Loan?
A home loan is also called housing loan which availed through a lender to get funds to buy a house by paying a small portion as the down payment and continuing repaying the loan up to the selected tenure. The loan amount is selected by considering the factors like the age and income of the applicant, credit or CIBIL score and history, property location, professional stability and employer category.
| Loan Against Property | Home Loan | |
| Usage | Used for business purposes, or personal use | To buy a house- plot, to construct a house or buy a flat |
| LTV | Up to 60% of the market value | Up to 90% of the market value |
| Processing fees | Up to 1% of loan amount + applicable taxes | Self-employed – Up to 1.20% Salaried – Up to 0.80% |
| Interest rate | 8.70% onwards | 9.50% onwards |
The interest rate may vary from bank to bank, to get best offers to check with multiple lenders.
Interest Rate
The rate of interest in home loans is comparatively lower to loan against property or mortgage loan. Loan against property is offered at an interest rate starting from 9.50 percent whereas the home loan interest rate starts from 8.70 percent. Loan against property is offered at a higher interest rate as there are higher chances of default in such case.
Loan-to-Value (LTV)
A maximum of 60 percent of the property value is offered as loan amount in loan against property, however, in-home loan, loan amount goes up to 90 percent if the property value. In both cases, the property is assessed by the lenders executive before sanctioning the loan and in loan against property, the valuation of property is also done.
Usage
A home loan is bought from a financial institution for various purposes like buying a home, buy a flat or buy an under-construction property. Loan against property is taken to either for business purpose or for personal use like, marriage, medical emergency or going for a vacation. A mortgage loan is sanctioned by evaluating the existing property.
Tenure
Tenure period in home loan is higher than loan against property. A home loan can be availed for up to a maximum of 30 years whereas loan against property is availed for a maximum of 15 years.
Tax Exemption
If a borrower has taken a home loan then he can avail the tax benefits under section 24 for interest and 80C for the principal amount. However, tax benefits cannot be availed in case of loan against property.
Documentation Process
The disbursal time in home loan is quick, it takes around 15 days due to simpler documentation process. Whereas, loan against property can take more time as lenders perform a thorough check of the property which is being mortgaged, though the documents submitted in both the types of loan is more or less similar.
Top-up Loans
In loan against property, a top-up loan facility is available. In top-up loan, you may be eligible to take more loan on your editing loan. Generally, home loans do not offer this facility, but there might be few lenders who offer this facility based on borrowers repayment capability.
For example, if you have taken a mortgage loan for 40 percent of the property’s market value, whereas the value of the property was 60 percent, then you can take a top-up loan for remaining 20 percent within the repayment tenure.
Conclusion
If you want to buy a house for a residential purpose then you should take a home loan if you need funds from a lender for any other purpose and you can repay the loan within the repayment tenure then you should take a loan against property.
