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Home Loan vs Loan Against Property

There is a good chance that you could get confused by two similar type of loan products. A home loan and a loan against property. There are fundamental differences between the two products.

Let us look at the differences b/w Home Loan & Loan Against Property

You take a home loan for the construction of a new home. You take it when you are ready- to- move into a new house, a property that is already under construction, or an empty plot of land in which a borrower wants to build a house. The lender of the loan charges an interest rate for these loans that need to be paid by the borrower in the form of equated monthly instalments.

 You take a loan against property, by using the existing property as collateral, the loan taken can be used to fund a variety of purposes. The borrower uses an existing property to borrow a sum of money that is equal to the market price of the property.

Let us look at the differences between the two:

Basis

Home loan

Loan against property

Usage

This loan is used to purchase homes. Not to be used for business.

These loans are multi-purpose loans. Can be used for both business and personal use.

Borrower’s requirements

The value of the home loan depends on the borrower’s income and repayment capacity. The lender also takes into account the borrower’s age, education, number of dependents, job, spouse’s salary, debt, assets, credit history, and stability of occupation.

 The value of the loan against property would be judged based on the value of the property used as collateral. The maximum loan amount that the borrower can receive depends on the current market price of the property. Apart from this, the lenders also take into account all the factors mentioned under the requirements for a home loan.

Collateral

A home loan is sometimes a secured loan that is supported by a down payment by the borrower.

A loan against property is a secured loan where the borrower’s property is used as a mortgage in exchange for the loan.

Tax benefits

There is tax exemption under section 24 (b) and section 37(1) for home loans.

Interest paid on loan against property is tax-deductible.

Term

The term of a home loan can go up to 30 years

A loan against property can go up to 15 years

Interest rate

Low interest rates compared to loans against property. The Reserve Bank of India and the Indian government take efforts to make housing affordable to all.

Higher interest rates than home loans. Most banks and lenders think that there is a higher chance of default on loans against property.

Value of loan

Lenders provide up to 90% of the loan amount.

Lenders like banks normally lend 60%-65% of the mortgaged property’s current market price as loan value

Ownership

If a property is used as collateral, the lender continues to be the owner of the property till the equated monthly instalments are paid by the borrower.

The documents of the property are handed over to the lender when the loan is purchased. Once the borrower repays the loan through EMIs the documents are handed back.

Top-up option

Home loans do not have the option of receiving more funding

Loans against property have the option of receiving more funding on your existing loan.

 

Additional read: 5 Ways Women Can Benefit from Taking Home Loans

Conclusion:

You need to have a thorough understanding of home loans and loans against property. You need to prioritize requirements and check and compare various loan options offered. Housing loans in general involve a lot of money and a borrower needs to make sure that the best deal is received to save more money.

Additional read: 6 Tips to enhance your home loan eligibility

Disclaimer

ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

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