Loan Against Property Vs Home Loan

Borrowers often make the mistake of confusing loans against property and home loans. While they sound similar, these are two very different loans. While home loans are secured loans obtained by individuals to buy a residential property, a loan against property is a multi-purpose loan that individuals secure by using real-estate they own to obtain funds which can be used for almost anything. When you obtain a loan against property, you are using a piece of real estate you own as collateral.

Here are some of the key differences between home loans and loan against property, to help you understand better.

#1. Interest rate charged

One of the key differences between property loans and home loans is the rate of interest that is being charged to the borrower. Typically, loans against property interest rates are higher than the interest levied on home loans. This is because banks and lending institutions think the chances of individuals defaulting on loans against property is higher. Additionally, the government and the Reserve Bank of India (RBI) always attempts to ensure that housing is affordable for all, hence, trying to minimize the cost of taking out a home loan.

#2. Loan to value percentage

Another important distinction between the two is that loans against property grant you around 60% of the property value, while for home loans this figure can shoot up to 90%. For most loans given against property, banks and lending institutions will typically get your property evaluated.

#3. Usage

While home loans have limited use, that is they can usually only be obtained to buy a home, plot, property under construction amongst others, loans against property are usually multi-use. On the other hand, a loan against property is a multi-purpose loan which is availed by leveraging real estate to obtain funds for anything varying from expanding your business to funding your child’s higher education. A loan against property is secured by using your real estate asset as collateral.

#4. Tenure

The loan tenure you can avail for a loan against property and home loans tends to differ. Typically, home loans have tenures of 20 years and can go up to a maximum of 30 years. However, while still long, most loans against property have a maximum loan tenure of 15 years.

#5. Top-up option

Almost all loans against property have the option of a top-up, which means that you can get more funding if necessary on your existing loan. This gives you more flexibility and allows you to use the same loan for multiple financial obligations. Typically, home loans do not have such a facility, however, some banks and lending institutions may provide you with the same contingent on further assessment.

#6. Tax exemption

Perhaps on the most noteworthy differences between the two loans is the tax exemption that can be availed. While loans against a property usually have non, home loans do come with tax benefits under Section 24 for the interest paid on them and under Section 80C for the actual the principal amount.

#7. Process of documentation

Usually, home loans required around 15 days to be approved and sanctioned and have a relatively simple documentation process. However, loans against property take longer to be processed as banks and lending institutions have to get the property valued as well as obtain and check upon personal information of the borrower.