Home Loan Vs Loan Against Property: All Things You Need To Know

In the financial world and especially in banking, there may be many financial terms and jargon that may confuse consumers. One may have to put additional effort to understand them in order to navigate through different processes and procedures.

In this article, we will be looking at the difference between home loan and loan against property, and understand various aspects related to them.

What is a Home Loan?

A home loan is an amount that is borrowed by a person in order to finance the purchase of a ready-to-move-in house or an under-construction home, renovate an existing home,, or construct a house on a plot of land he/she already owns. . Most lenders provide upto a maximum of 80%-90% of the value of the property as a loan. The remaining 10%-20% has to be arranged by the borrower.

It comes under the category of secured loan, as the lender has possession of the deeds to the property until the loan has been repaid in full. Thus, in case of a default, the lender can repossess and sell the house to recover the amount.

The borrower needs to pay back the principal loan amount along with agreed interest via EMIs over a tenure of upto 20 years.

What is Loan Against Property?

It is also known as LAP. Here, you pledge your existing self-owned properties as collateral to get a loan. Most lenders provide a maximum of upto 65%-75% of the market value of the property as the loan amount. The final loan amount provided will also depend on a number of other factors, such as the lender’s policy, the borrower’s profile & repayment capacity and nature of the property.

Under LAP, the borrower needs to hand over the property deeds to the lender until the loan is paid back along with interest. In case of a default, the lender can repossess and sell off the pledged asset.

The LAP is like a secured personal loan, where the lender doesn’t put any restriction on the end usage of the loan amount. It can be used for any purpose, like funding business expansion or child education, marriage, etc.

Home Loan vs Loan Against Property

Let’s understand the fine differences between both the loan types.

1. Quantum of Loan Amount
In the home loan category, the quantum of the loan amount to be approved depends on the borrower’s income, employment status, job type, and credit report. In favourable scenarios, you can get up to 90% of the value of the property as a loan.

On the other hand, the quantum of loan amount under LAP depends on the value of the property. Usually, the lenders approve up to 75% of the value of the property as a loan amount and depending on multiple factors.

2. Interest Rate
Compared to a loan against property, a home loan has lower interest rates and the final interest rate offered to you will depend on your credit profile and other factors.

SMFG Grihashakti offers attractive interest rate on home loans as well as loans against property, depending on the applicant’s eligibility and profile. Contact Us to know more.

3. Usage
A home loan can be used specifically for only the purchase, renovation or construction of a house property . But, there is no restriction on the usage of loan amount obtained under loan against property. The LAP a secured personal loan, which can be used for anything. You get more flexibility to spend the loan amount.

4. Repayment Tenure
The maximum repayment tenure of a home loan from SMFG Grihashakti can go up to 20 years, whereas, LAP has a maximum loan tenure of 15 years.

For both types of loans, you have to make full repayment of the loan amount within your retirement age. For example, if you are availing of a home loan at 40 years of age, you need to plan your EMIs accordingly to make full repayment by the time you reach 60.

5. Tax Benefits
This is where a home loan has a big advantage over a loan against property, i.e., tax savings. Under the Income Tax Act 1961, you can avail tax deduction of up to Rs 1.5 lakh on the payment of the principal amount and a deduction of up to Rs 2 lakh on the interest paid under Section 24, only if the owner resides in the house property.

While, under loan against property, there are no tax exemptions provided.

Summing Up

In the above discussion of home loan vs mortgage loan, we can see, both the loan categories are completely different and have their own set of rules. One is used for the purchase or creation of house property, and the other mortgages an existing residential or commercial property to raise funds.

If you are looking for affordable mortgage loan solutions, apply online on SMFG Grihashakti today

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