Difference Between Loan Against Property and Home Loan?

How Loan Against Property is Different from Home Loan?

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How Loan Against Property is Different from Home Loan

There are plenty of financial terms with regard to home loans that leave the borrowers confused. Most of the time borrowers get confused between ‘Home Loan’ and ‘Loan Against Property as the features and benefits of both the loans are quite similar. These two terms often come in use interchangeably. Loan against property is additionally also known as ‘mortgage loan’.

So, What is the Difference Between Home Loans and Loans Against Property? Let’s Find Out.

A home loan is actually a loan you’re taking to buy a ready-to-move-in house, a property under construction, or a plot of land on which you plan to create a house. This is often a secured loan offered by banks or housing finance companies. Therefore, the buyer must pay a down payment. The lender charges a fixed or floating rate of interest on the loan. Therefore, the buyer must repay the loan in monthly EMIs. With each EMI payment, the borrower builds equity in the property. This ultimately leads to complete ownership upon finalizing the loan through full EMI payment. If the borrower defaults on EMIs, the lender can auction it off to recover losses.

A loan against property is actually a mortgage loan. In this, a borrower can pledge his existing, self-owned property for a sum of amount that equals a particular percentage of the market price of the property he owns. He must hand over the property documents to the lender until the time he repays the loan. Therefore the loan, just like the home loan, is often repaid in EMIs. EMIs consist of the principal loan amount taken and the rate of interest. If the borrower defaults on repaying the loan, the lender can sell the pledged property to recover his investment.

LAP vs. Home Loan

Loan Against Property vs. Home Loan

Here is Some Important Difference Between LAP and Home Loan to Make you Understand Better:

  1. Interest Rate: One of the key differences is the rate of interest that’s being charged to the borrower. Typically, loans against property interest rates are above the interest levied on home loans. This is often because banks and lending institutions think the possibility of people defaulting on loans against property is higher. Additionally, the govt and also the Reserve Bank of India (RBI) always attempt to make sure that housing is affordable for all, hence, trying to reduce the value of taking out a home loan.
  2. Usage: Unlike LAPs, home loans come with stricter limitations, generally meant for financing homes, plots, or ongoing construction projects. Whereas, a LAP is a multi-purpose loan that is availed by leveraging land to get funds for anything. This can vary from expanding your business to funding your child’s education. Pledging your land or home asset as collateral qualifies you for a LAP.
  3. Loan to Percentage Value: Another important distinction is that loans against property grant you around 60% of the property value, while for home loans this figure can increase to 90%.
  4. Tenure: The loan tenure you’ll avail for a LAP and home loans tends to differ. Typically, home loans have tenures of 20 years and may go up to a maximum of 30 years. However, while still long, most loans against property have a maximum loan tenure of 15 years.
  5. Top-Up Option: Almost all loans against property have the option of a top-up, which suggests that you simply can get more funding if necessary, on your existing loan. This provides you more flexibility and allows you to use a similar loan for multiple financial obligations. Typically, home loans don’t have such a facility, however, some banks and lending institutions may provide you with a similar dependent on further assessment.
  6. Process of Documentation: Usually, home loans approval and sanction process takes around 15 days and has a comparatively simpler documentation process. However, the processing of LAP loans takes longer. Be prepared for property valuation and thorough personal information checks, as these are standard procedures for securing a loan from banks and lending institutions.
  7. Tax Exemption: Perhaps the foremost noteworthy difference between the two loans is that the tax exemption that may be availed. While loans against a property usually have non, home loans do accompany tax benefits under Section 24 for the interest paid on them and under Section 80C for the actual principal amount.

Thus, considering all the information associated with the comparison between home loans and loans against property, the borrower can easily differentiate and prioritize his/her requirements and check and compare various loan options offered by several banks and NBFCs. Knowing the significance of your financial commitment in a home loan or LAP, we strive to make the process smooth and stress-free. Customers can choose between numerous home and mortgage loan options that suit their requirements at no additional cost by visiting the lender’s website.

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Also Read:

Loan Against Property EMI Calculator

Factors That Affect Loan Against Property Eligibility

Loan Against Property Without Income Proof & Income Tax Return

Benefits, Eligibility and Documents Required for Loan Against Property

Loan Against Property: How can you avail Tax benefits from LAP?

Loan Against Property Vs. Personal Loan: Which One is Better?

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  1. You receive the approval of your home loan.
  2. You sign the loan agreement papers and complete other necessary documentation. The loan amount is thereafter paid directly to the builder by Home First Finance Company.

Loan decisions are made in less than a week. You will receive an SMS on your registered mobile number as soon as we make a decision.

HomeFirst does not charge any prepayment fees. This applies to both partial and full repayments. In fact, we have a special Auto-Prepay feature to facilitate this process for you.

HomeFirst offers loan tenures between 1 year to 25 years. If you opt for a longer tenure, you can get the advantage of a lower EMI each month.

HomeFirst can provide finance up to 90% of the property value. The balance has to be arranged by you from other sources. Please note: 90% financing is only available for loans amounting to less than Rs. 30 lakhs.

All co-owners of the property have to be co-applicants to the loan. A person who is not a co-owner can also become a co-applicant to the loan.

During the construction phase, HomeFirst will disburse funds to the builder on your behalf. These will be based on payment requests made by the builder as per the construction schedule.

HomeFirst will charge interest only on the amount disbursed as loan during the construction phase. In this period, interest is charged only on the disbursed loan amount. For example, if you have a sanctioned loan of Rs 10 lakhs, but the property is under construction and we have disbursed only Rs 4 lakhs, you will be charged interest only on 4 lakhs. These interest payments are referred to as pre-EMI interest payments.

EMI payments will start only after completion of the project and registration of the property.

All cheques to HomeFirst should be written out in favor of ‘Home First Finance Company India Limited’.

In the event of an unfortunate incident, home loan insurance will help you or your family pay off the home loan. This ensures that the burden does not suddenly fall upon family members at a bad time.

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