Even though a home loan and a loan against property are two different loans, the phrases used to describe them make them seem identical. Both of these loans are secured by the property. Let’s compare and contrast the two loans to see what the differences are.
What is a home loan?
A home loan is essentially a loan you take to purchase a house that is finished or that is still being built. You can also use this loan to purchase a piece of land on which you want to put a house. Because this is a secured loan provided by banks or other financial organizations, the borrower is required to make a down payment. These loans are provided at a fixed or floating interest rate, and repayment is required in equal, scheduled EMIs. The lender may sell the assets to recoup the debt if the borrower defaults on the EMI payments.
What is a loan against property?
A mortgage loan is a loan taken out against a property. With this loan, the borrower is actually able to borrow the same amount while pledging his existing property. In this situation, the lender must receive the property documentation.
A loan against property gives the borrower access to a sizeable sum of money. These loans are typically used to start new businesses, finance weddings, or send children overseas for school.
Factors Which Are Different for LAP and Home Loans
Interest rate
One of the primary distinctions between LAP and home loans is the interest rate that is levied. The interest rates charged for loans secured by property are higher than those charged for residential loans. This is so because lenders believe there is a bigger chance of a loan against property defaulting than there is with a home loan. One of the causes could be that the Reserve Bank consistently works to cut interest rates so that housing is affordable for everyone.
Usage
A site, a house that is still being built, or a house that is already finished can all be bought with a home loan. On the other hand, the borrower is free to spend the proceeds from the secured loan in any way they see fit. The borrower may use this cash for their kids’ weddings, college expenses, etc. The asset is used as security for the loan against property.
Documentation process
Home loans typically take 15 days to process, be approved, and have the money paid into the account. On the other hand, a loan against property requires a longer application process and requires the property to be evaluated.
Top-up option
Almost all loans secured by real estate have the option of being topped up after some time. Due to the fact that the money can be utilized for a variety of issues while keeping the loan the same, this alternative sounds appealing. This gives you flexibility and makes using the loan simple. Home loans typically lack this feature and may not be as flexible. However, certain lenders might give their clients this choice.
Tax exemption
The fact that a tax exemption is accessible to the borrower of a home loan but not to the borrower of a loan against property is perhaps one of the differences between the two that stands out the most. Under sections 24 and 80C of the Income Tax Act, home loans are eligible for tax benefits.
Loan to value ratio
A bank or other financial institution may provide up to 90% of the funding for a home loan. In contrast, only 60% of a loan-secured property is usable for financing after the property has been assessed.
Conclusion
After taking into account each of the aforementioned variables, it is clear that whether a loan against property or a home loan is preferable for you will depend on your needs. A home loan is a fantastic choice for you if you need a decent place to live and want to take care of that matter. On the other hand, if you need money for a different reason and you own a house as an asset, you can put up the asset as collateral and use the money for whatever needs you to have.
Author: Amit Kumar
Amit is the founder of YoursNews. This is a next generation blog, proved that blogging is an art; focus on valuable ideas and genuine stories, rest everything will fall into place.
