Funds are readily available as Home Loans and loans against property for big-ticket purchases. These are the two most popular loans available on the market. But people often confuse these two loans. Look at the article below and learn how to differentiate between these loans.
What is Home Loan and Loan Against Property?
A Loan Against Property (LAP) is also known as a mortgage loan. Mortgage loans are for multiple purposes, from personal to business.
You can get funds against industrial, commercial, or residential property. The lender provides you with the loan amount based on the market rate of your property.
So to avail this loan, you need to submit the property documents; the lender will return the same after full loan repayment.
If the borrower cannot repay the loan to the lender, the lender can take over the property to recover the money.
On the other hand, a Home Loan is a secured loan taken by prospective homebuyers who want to buy a new home or plot. The funds raised by a Home Loan can only be used to acquire a house or a plot. Till the entire payment of the loan is finished, the lender remains the owner of the property/home. Once the final payment is made, the ownership is formally transferred back to the borrower. A Home Loan has a fluctuating interest rate and usually comes with a longer tenure.
If the borrower cannot repay the loan, the lender can auction the house to recover the money.
Key differences between Home and Loan and Loan Against Property
Let us weigh the key differences between these two loans:
The interest rate of a Loan Against Property is always higher than that of a Home Loan. Home Loan rate of interest starts at 8.75% p.a., while that of a Loan Against Property is 9.15% p.a. The key reason behind this is a general attempt to make housing affordable, so Home Loans are always kept at an affordable interest rate.
Since loans against property are for multiple purposes, their interest rate is higher. Another reason is that lenders believe there is a higher chance of people defaulting on LAP than Home Loans.
A key difference between a Loan Against Property and a Home Loan is the usage of funds. While the funds acquired through a Loan Against Property usage are multiple, including personal needs and business expansion. A Home Loan usage is limited for a home, plot, or property purchase.
Both loans are secured as you are giving either your property or your house as collateral. While a Loan Against Property gives you more flexibility to use your funds, a Home Loan limits you.
Tenure is the time taken for the entire repayment of the loan. The tenure for a Home Loan can range between 15-20 years, depending upon the sum of the loan taken and the borrower’s financial capability. However, a Loan Against Property have a maximum tenure of 15 years.
A Home Loan provides tax benefits and no such benefits are available to a borrower who has opted for a Loan Against Property.
Loan to Value
Loan to Value is the market value of the property, evaluated by the lender before granting the loan. It comes in use for Home Loan and Loan Against Property both. While the lender provides a principal amount equating to 60% of the property value in a Loan Against Property, a Home Loan is available for up to 90% of the property value.