When it comes to home loans, there are a lot of financial terms that leave the applicants confused. Mostly, borrowers get confused between ‘Home Loan’ and ‘Loan against Property’ and their features and benefits become all the more confusing for them. Quite frequently, these two terms are even used interchangeably. Loan against property is also sometime referred as mortgage loan. So What is the difference between home loan and Loan against property?
Home loans are taken majorly to buy house, plot, under construction property, etc. Whereas, loan against property is termed as a secured loan that helps borrowers to meet their personal and business requirements by mortgaging their property. Loan against property or mortgage loan can be used for various purposes, such as expansion of business, marriage in family, funds for medical treatment, leisure vacations and higher studies for children, etc. Below is a tabular representation of the comparison between main features of home loan and loan against property.
Home Loan Vs. Mortgage Loan
| Category | Home Loan | Loan Against Property |
| Interest Rate | 8.70% onwards | 9.50% onwards |
| Margin | Upto 90% of property value | Upto 60% of property value |
| Tenure | Upto 30 years | Upto 15 years |
| Tax Exemption | Exemption Under Section 24 for interest & 80C for principal | No Tax Exemption |
| Purpose | To buy house, plot, under construction property | Used for business purposes, or personal use |
| Processing Fee | Upto 1% of loan amount + applicable taxes | Upto 1% of loan amount + applicable taxes |
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Interest Rate Comparison of Home Loan and LAP
| Banks | 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 | 8.95% onwards | 9.50% onwards |
| LIC Housing Finance | 8.70% onwards | 10.50% onwards |
| Indiabulls Housing Finance | 8.80% onwards | 11.50% onwards |
Let’s now compare home loan and loan against property with various other related aspects.
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Home loan and loan against property comparison
Interest Rate: Home loan as compared to loan against property is offered at comparatively lower interest rates. Loan against property is offered at bit higher interest rates, as the chances of default are high in this case. Home loan can be availed at as low as 8.70% onwards, whereas loan against property is offered at minimum as 9.50% onwards.
Loan-to-Value (LTV): Loan against property is granted maximum upto 60% of the property value and home loan is offered maximum upto 90% of the property value. Banks usually visit the property site before sanctioning home loan. Property valuation is also performed in case of loan against property.
Usage: Home loan can be availed for various purposes, such as buying or procuring a home, plot, under construction property, etc. Loan against property can be used by borrowers for business and personal use and is sanctioned on the basis of existing property. It can also be used for industrial and commercial properties.
Practices to Avoid: The amount received under loan against property cannot be used for other purposes, such as gambling, speculative business activities, buying or selling of shares, stock market, and any other suspicious activity.
Tenure: Home can be availed upto maximum of 30 years, however loan against property is provided for maximum upto 15 years.
Tax Exemption: Nil, in case of loan against property but home loan comes with tax benefits under section 24 for interest and 80C for principal amount.
Documentation Process: In case of home loan the time duration required for its sanctioning is approximately 15 days with simple documentation process. However, in case of loan against property the time required is comparatively much more as banking institutions and NBFCs (Non-Banking Financial Companies) do perform thorough checks on the property details and personal information of the borrower or the applicant.
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Benefits of Home Loan & Loan against Property
|
Benefits |
Home Loan |
Loan Against Property |
| Gets your dream home | Gets property for Personal & Business use | |
| Tax Benefits Included | Low EMIs (Equated Monthly Installments) | |
| No Prepayment Charges | Availability of Immediate Funds | |
| Balance Transfer Facility | Flexibility in Tenure | |
| High Repayment Tenure | Easy Balance Transferring | |
| Property Appreciation | Simple Documentation Process | |
| No Paying Rent | Quick Approvals |
Thus, considering all the information related to the comparison between home loan and loan against property, borrower can easily differentiate and prioritize his/her requirements and check and compare various loan options offered by several banks and NBFCs. By visiting paisabazaar.com customer can choose from numerous home and mortgage loan options that suit their requirements at no additional cost. We understand that a lot of money is involved in taking any home loan or loan against property. Paisabazaar, via its team of professionals provides detailed and expert advice to its customers, so they can have better insight and understanding of the loan product they wish to take or invest their hard earned money in any of the financial instrument.
