Difference Between Home Loan and Loan Against Property

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Availing any loan involves a lot of hassle. The problem of whisking from one bank to the other doesn’t arise on availing loan against the property. People often get confused between home loans and loans against property. The two hold importance on different grounds. 

A home loan is the type of loan, which is taken to purchase a house at affordable rates. On the other hand, loan against property can be availed for various reasons. Under this loan facility, the loan borrower can pledge his property to take the loan.

In the case of default, the loss incurred to the banks is recovered in a somewhat similar manner under each case. The defaulter’s house can be auctioned off if he is unable to pay off the debt under the loan against property, while the home loan borrower has to sell his house to repay the outstanding debt. 

Major fields of difference between home loan and loan against property are the following:

  • Purpose
  • Quantum of loan
  • Interest rate
  • Loan tenure
  • Top-Up facility
  • Tax-exemption

The factors above-mentioned hold significant features of the difference between the two financial options available in the market. The following shows the difference between them in a broad sense.

Purpose 

The main ground of difference between the two is the purpose of usage of the loan amount. The loan amount taken under home loan has to be used for the purchase of the plot, renovation of the house or for the purchase of a house. Documents for the end use of the money has to be submitted for the approval of the loan from the bank’s head. While the loan against property can be used for various purposes such as a wedding, foreign studies, travel, and etc., the end use of the fund doesn’t have to be proved. 

Quantum of loan

Real estate holds the potential to put a person under an excessive financial burden. To ease this problem, the banks and NBFCs provide home loans to the borrowers. Home loans grant a higher percent of the valuation of the property. It may escalate up to 90% of the property value. However, in the case of availing loan against property, the loan sanctioned would be up to 70% of the property value.

Interest Rate

The government and the financial institutes offer lower interest rates to the home loan borrowers as they want to make housing affordable to all. The interest rate offered under loan against property is high in comparison to the one provided under the home loan.

Loan Tenure

Loan against property offers a high-value loan, and it takes a significant number of years to repay the debt. It offers flexible tenure spread over a period of 18 maximum for a self-employed individual. The home loan tenure stands in the same range of a maximum of 20 years.

Top-up facility

Loan against property comes with the option of availing a top-up loan, which can be used for various purposes. No document is required to be shown for the end use of the fund taken. The home loan doesn’t provide such a facility, though some banks do offer this facility after vigorous assessment.

Tax-exemption

The borrower cannot enjoy tax exemption benefits on availing the loan against property. But there are several provisions for tax exemption under Low Interest Home Loan, which is applicable as per section 80C and section 24 of the ITA

It is easy to avail of any of the two types of financial products. Both of the financial products come with their own set of rules and regulations and not adhering to all of it can result in a significant loss to the borrower.   

 

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