Home Loans VS Loan against Property

Home Loans

A loan product which enables a person to borrow funds from a lender to buy or construct a house or residential property is known as home loan. A variation of this type of loan is composite loan, which lets the borrower use the money obtained to buy a plot of land and carry out construction on it to obtain a home. Home loans in India are available for buying a new house/ property as well as resale flats or houses.

Loan against Property

Loan against property may be defined as loan plan in which the banks treat a property as collateral and lend a certain amount of money against it on fixed rate of interest. These types of loans usually come with long repayment options and are granted against any type of property such as commercial, industrial or others. The loan amount depends on the value of the property and the EMI depends on the loan amount. Loan against property is usually considered to be an ideal source of finance because of its low interest rates and the simpler process of getting the loan approved.

Home Loans VS Loans Against Property

* Lenders provide up to 80% of the agreement value of the house as home loan while you can avail 80% of the registered value of your property through loan against property. This however may vary slightly according to the bank’s policy, property type and valuation.

* Interest rates for home loans are lower than that for loan against property (LAP). Home loans are available at interest rate as low as 9.90% whereas the interest rate associated with LAP ranges between 12-16%.

* In case of LAP, the maximum amount to be approved as a loan depends primarily on the value of the property whereas for home loans an individual’s income vitally decides maximum loan eligibility.

* Home loans can be repaid through EMIs and generally possess a tenure of up to 25-30 years subject to factors like the age of the borrower at the end of the tenure. In case of LAP, the extension of repayment term lies within the range of 5-15 years.

* Usually home loans are known to serve the sole purpose of purchasing a residential property or house but LAP can be taken to fulfill the requirement of funds for any purpose.

* LAP is available at a fixed rate of interest whereas a home loan can be divided into classes according to their types of interest rates. These are fixed rate and floating rate of interest.

* If a salaried person opts for a home loan he gets tax incentives while paying the EMI. LAP, on the other hand, does not offer any such benefits.