Thursday, October 1, 2020

Home loan vs Loan against Property- Key Differences

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Property loans are one of the most popular kinds of loan borrowed in India. However, when it comes to loans related to property, many often find it challenging to understand the difference between a home loan and loan against property. Read on to find out what the key differences between these two types of loans are.

Often people who are applying for a loan for the first time find themselves in a difficult situation as they cannot understand what’s the difference between a home loan and a loan against property. Many people believe both are same and often use the terms interchangeably. However, both are different products; they have different features and serve a different purpose.

What is a home loan?

Home loans are loans that you take from a financial organisation to purchase a home or construct a home on the land that you own. This means that when you avail a loan, you do not have the ownership of the property.

What is a loan against property?

Loan against property is also often referred to as a mortgage loan. It is an unsecured loan where the lenders ask you to pledge an asset against the amount you borrow. The lenders decide the loan amount based on the value of the property you pledge. When you apply for a loan against property, you pledge the property that you already own.

  • Factors that impact the loans

Factors such as property’s current price, your age, CIBIL score, employment history, etc. affect a home loan. There are a few types of home loans, such as land purchase, home purchase, construction, etc.

For loans against property, factors such as the value of the property, location of the property, and your repayment ability are essential. The loan can only be taken against an industrial, commercial or a real estate property.

  • Loan Amount

Generally, the lenders in India offer home loan upto 80% of the property value.

Meanwhile, as per the RBI, for LAP, you can avail a loan only up to 60% of the value of the property you keep as collateral.

  • Tax Exemption

Under Section 80C of the Income Tax Act, a person with a home loan can get up to Rs. 1.5 lakh tax exemption on the principal repayment amount. Unlike home loans, there are no tax exemptions on loans against property.

  • Tenure

Most home loan lenders in India offer home loans for a maximum period of 30 years. However, the longest tenure for a loan against property is 15 years.

  • Interest rates and types

In both cases, a home loan or a loan against property, the borrower can choose between fixed or floating rates. In fixed loans, the interest rates and the EMI are fixed till the loan duration. But, with floating rates, the interest and the principal vary.

The interest rate for home loan vary from lender to lender. You can avail a home loan at starting from 8.25%. For loan against property, the interest typically started from 9.40%

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