How Is A Loan Against Property Different From A Home Loan

How Is A Loan Against Property Different From A Home Loan

People require loans for several reasons. Depending on why people need a loan, there are a variety of lending choices available to them. Amid all the loan options available, people become confused and make mistakes.

One of the most common types of loans that people get more confused about is home loans and a loan against property, which is also known as a mortgage loan. In this article below, we shall discuss in detail what is the difference between a home loan and a loan against property.

Home Loan vs Loan Against Property

How Is A Loan Against Property Different From A Home Loan 1

A home loan is a type of loan that can be availed to fund the purchase or construction of a home, i.e, the property which does not belong to the loan applicant. A loan against property also known as a mortgage loan is a loan that is secured by a property that the borrower already owns.

Home loans and mortgage loans are both secured loans that are used to pay for large expenses. However, they do differ significantly and the differentiation table below explains how they differ.

 Home LoanLoan Against Property/ Mortgage Loans
PurposeOnly for the construction of the new home or the acquisition of a property that is ready to move in.There are no restrictions on how the loan money can be utilized. It may be utilized to fulfill personal as well as professional needs.
Loan To Value RatioA loan for up to 90% of the property’s market value can be obtained.A loan of up to 60% to 70% of the property’s market value can be obtained.
Interest RateWhen compared to mortgage loans, the interest rate for home loans is very low.The interest rate on a mortgage loan is typically 1 to 3 percentage points higher when compared to the rate on a home loan.
Processing Fee0.8 % to 1.2 % of the loan value is common.1.5% of the loan value is common.
Repayment TenureMaximum of 30 years.Maximum of 15 years.
   

Quantum Of Loan

Quantum Of Loan

Buying a home is often the most expensive investment you will make. When compared to a loan against property, a home loan is particularly created for this purpose and allows you to take out a larger loan for the same amount of security guaranteed.

Interest Rate; Loan Against Property Tax Benefits

Interest Rate; Loan Against Property Tax Benefits

The interest rates on home loans are lower than those on mortgage loans. This is because the Indian government wants to make housing more affordable to everyone, hence the Reserve Bank of India has reduced the lending rates on home loans.

Loan Tenure

How Is A Loan Against Property Different From A Home Loan 2

Long terms are available on both home loans and mortgage loans. A home loan might have a term of up to 30 years. A mortgage loan normally has a term of 15 years, however, many lenders offer terms of up to 20 years. Based on your financial situation, these loans also allow you to make partial or complete pre-payments to lower the period or EMI.

Top-Up Loans

Top-Up Loans

You can usually take a top-up loan on top of your existing loan with a mortgage loan. This is possible because you may be qualified for a loan that is significantly larger than the one you first selected. For example, if you are qualified for a loan of up to 70% of the property’s market value but have only borrowed 50% of it, you can get a top-up loan for up to the remaining amount. A top-up facility is not normally available with home loans, however, certain lenders may do so depending on their evaluation of your ability to repay.

Tax Exemption; Loan Against Property Tax Benifits

Tax Exemption; Loan Against Property Tax Benifits

Under Section 80C you can claim a deduction of up to Rs 1.5 Lakh on home loan principal repayments. Additionally, you can also claim tax exemption Under Section 24 on the interest payment of your home loan. It is important to note here that general-purpose mortgage loans do not qualify for tax exemptions.

Prepayment Charges

How Is A Loan Against Property Different From A Home Loan 3

In the event of a floating rate of interest, no lender can levy a fee for prepayment, regardless of the type of loan you have taken.  A prepayment fee may be imposed if a fixed rate of interest is applied. This varies from one lender to another.

What Are The Documents Required To Avail Home Loan And Loan Against Property / Mortgage Loan

Both home loans and a loan against property require the same documents. Below is the list of documents that are required to avail them-

  • Latest salary slips/ proof of income.
  • Bank account statements for the last 3 to 6 months.
  • PAN card.
  • Aadhar card.
  • Proof of address.
  • Documents about the property being purchased.
  • Income Tax returns

In the case of mortgage loans, you will also need to have complete paperwork for the property that is being pledged.

Closing Thoughts

If you want to finance the purchase or building of a residential property, you should take out a home loan. A home loan cannot be used for any other purpose other than to purchase a property. Hence, if you have a particular requirement, a loan against property or a mortgage loan is a feasible solution.

Loan Against Property FAQs

1. Who is eligible for a home loan ?

A salaried person, who is less than 60 years old and a self-employed person who is less than 65 years old is eligible for a home loan.

2. What is the interest rate for a loan against property for a salaried person ?

The interest rate is 10.10% - 11.50%.

3. Is it safe to take a loan against property ?

Yes, it is safe to avail of a mortgage loan if you are sure that you can repay the loan without any default.

4. How long does it take to get a loan against property sanctioned ?

It takes around 3-4 weeks to get a loan against property sanctioned.

5. Can I apply for a loan against property jointly with my spouse ?

Yes, you can apply for a loan against property with your spouse.
Property Geek

Property Geek

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