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Differences Between Home Loan And Loan Against Property

IndianMoney.com Research Team | Posted On Wednesday, March 06,2019, 04:57 PM

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Differences Between Home Loan And Loan Against Property

 

 

Everyone dreams of living in their own house. People invest lifetime savings in realizing this dream of owning a house. Owning a house has become one of the factors, driving people towards saving. But, not everyone can afford to own a house without availing a home loan. In fact, these days, most houses in urban India are purchased availing a home loan.

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Differences Between Home Loan And Loan Against Property

Purpose of Loans

Home loan is a loan availed to construct a house, purchase a ready to move apartment or under construction house and even renovate or reconstruct a house. Funds received can only be utilized for the purposes mentioned above. Home loans are specific to housing-related financial requirements. Home loan is a good loan, which enables the purchase of an asset in the form of a house. Good loans are those loans that enable borrowers buy properties and apartments. Other examples of good loans are education loan and car loans.

Loan against property (LAP) is a loan availed by pledging a property with the lender/bank. You can pledge a residential property, commercial property and even a piece of land. The property being pledged under loan against property must be registered under your name and must be free from encumbrances. The funds received from LAPs can be utilized for any purpose and there are no restrictions like home loans. Loan against property is a bad loan if used for the wrong reasons.

See Also: Loan Vs Loan Against Property

Rate of Interest 

Rate of interest on home loans are comparatively lower when compared to loan against property.

The table below compares the rate of interest offered by popular banks on home loans and loans against property:

Lender

Home Loan

Loan Against Property

HDFC Bank

8.80% onwards

9.90% onwards

SBI

8.70% onwards

9.95% onwards

Axis Bank

8.80% onwards

11.25% onwards

ICICI Bank

8.95% onwards

9.50% onwards

LIC Housing Finance

8.70% onwards

10.50% onwards

Indiabulls Housing Finance

8.80% onwards

11.50% onwards

 Tenure 

Home loans are offered for a longer tenure when compared to loan against property. Home loans are offered for maximum tenure of 25 years depending on the eligibility of the borrowers. The maximum loan tenure under a loan against property is 15 years. Home loans enjoy an edge over LAP when it comes to tenure.

LTV

Loan to value ratio LTV, is the maximum loan amount you get for the value of asset pledged. Home loan scores over loan against property in this point. Loan to value ratio in loan against property would be up to 70% of the market value of the property pledged. In home loans, maximum loan to value ratio can be up to 90%.

Documentation and Ease of Approval

For both home loans and loans against property, you must possess PAN card. You must produce a valid identity and address proof to avail both LAP and home loan. For both LAP and home loan, you must produce income proof documents like latest payslips; 6 months bank statement, Form 16 and latest income tax returns statement. Additionally for loans against property, you must produce all ownership documents of the property being pledged. You would lose out on the property ownership rights by pledging your property for a loan. Loan default means losing the property.

Home loans are approved in a shorter duration of time. Processing of loan against property takes longer as the lenders would assess both repayment capabilities of the applicant and the market value of the property being pledged. In short, home loans are processed faster than loans against property.

Tax Benefits 

Major benefit of availing home loan is that it offers tax benefits which loan against property do not. Both interest and principal repayment of home loans are eligible for tax deductions.

Principal repayment enjoys tax benefits under Section 80C and interest repayments are covered under Section 24 of the Income Tax Act. Availing loan against property offers no tax benefits.

Benefits 

Home loan benefits:

  • Tax benefits: To encourage people buying their own houses, tax benefits are offered on repayment of both principal and interest towards home loan. Principal and Interest repayments on home loan enjoy tax benefits.
  • Balance Transfer Facility: You are allowed to change your current lender due to various reasons. This is enabled through the balance transfer facility. You can transfer your loan balance to a lender who is offering lower interest rate than your current lender.
  • Longer Tenure: Home loans repayments can be stretched up to 25 to 30 years depending on the eligibility of the applicants.

LAP Benefits:

  • There are no restrictions on the use of funds in LAP.
  • LAPs offer lower interest rate than personal loans.
  • Funds received as LAP can be used to fund various requirements like buying a car, children’s education fee, house renovation and so on.

See Also:  Benefits Of Home Loans

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