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3-min read

Home Loans v/s Loan against Property

Home loans are high value loans, they attach flexible repayment tenures ranging up to 30 years, in most cases. On the other hand, a Loan against Property is generally subject to a tenure ranging up to 15 years.

Updated:April 30, 2019, 3:45 PM IST
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Home Loans v/s Loan against Property
Home loans are high value loans, they attach flexible repayment tenures ranging up to 30 years, in most cases. On the other hand, a Loan against Property is generally subject to a tenure ranging up to 15 years.
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The loan space has its own share of financial jargons, and particularly so when it comes to home loans. So much so, that you could be left thinking out loud, how exactly is a home loan different from a Loan against Property (LAP). Moreover, Home Loans and Loan against Property are used interchangeably sometimes.

To solve this muddle, an analysis of these two financial instruments, with the help of a comparative study, is important in order to find out what exactly they mean and which one would be better suited for you:

What is a Home Loan?
A home loan is a financing instrument that you can avail to buy a ready-to-move in house, or book a plot or property that is still under construction. Additionally, home loans can be of much use if you have home renovation or further extensions to your property in mind.

What is a Loan against Property?
Loan against Property (LAP), also referred to as a mortgage loan, is a financial product that is secured by you pledging your residential or commercial property in lieu of it. You can take out a LAP to fund a host of both personal and professional needs such as financing business expansions, funding your child’s higher education expenses or an urgent medical obligation, paying for the long-awaited annual family trip, and more.

Home Loans vs Loan against Property
At the very outset, it is good to remember that a home loan and loan against property are distinct financing tools, differing in their characteristic features, benefits and scope. Let us dig deep into the basic points of difference between the two. Read on:

- Loan-to-Value Ratio (LTV Ratio): A home loan is designed to help you buy a property (either ready to move or still under construction), make extensive renovation or property expansion. Therefore, the sanctioned funds, in case of a home loan, can be up to as much as 90% of the total value of property. On the other hand, a Loan against Property can be sanctioned up to 60% of the property value.

- Interest rates: Considering a LAP entails chances of defaulting at the time of repayment, such a loan is subject to comparatively higher interest rates vis-a-vis a home loan. Moreover, interest rates on a home loan are capped a few points lower in order to provide affordable housing to the citizens of India.

- Loan tenure: Since home loans are high value loans, they attach flexible repayment tenures ranging up to 30 years, in most cases. On the other hand, a Loan against Property is generally subject to a tenure ranging up to 15 years.

- Tax benefits: A Loan against Property doesn’t have the provision of any tax benefit. Whereas, you can avail tax exemptions on the principal home loan amount under Sec 80C of the IT Act, up to a maximum of Rs.1,50,000. Additionally, the interest on a home loan also qualifies for tax benefits under Sec 24, and is capped at Rs.2,00,000.

The Verdict
After having dissected the major points of difference and explained all characteristic benefits in detail, you should now be up to speed with the two widely used financing instruments. Bear in mind that while a home loan can be of help should you want to buy a house or property that could be still under construction, a LAP can help you address a range of personal and business obligations.

To know more, click here.

This content has been created in association with YONO SBI.

(Get detailed and live results of each and every seat in the Lok Sabha elections and state Assembly elections in Andhra Pradesh, Odisha, Arunachal Pradesh and Sikkim to know which candidate/party is leading or trailing and to know who has won and who has lost and by what margin. Our one-of-its-kind Election Analytics Centre lets you don a psephologist’s hat and turn into an election expert. Know interesting facts and trivia about the elections and see our informative graphics. Elections = News18)
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