Difference Between Home Loan and Loan Against Property

Many financial institutions in India, including banks and non-banking financial companies or NBFCs offer different kinds of home loans to suit the needs of different people. You can get a home loan to purchase a new home, or you can even use your existing home as a mortgage to get a loan against property. However, many people, especially first-time loan applicants tend to get confused about these loans and don’t know the difference.

Both home loan and loan against property, which is also known as a mortgage loan or LAP, are entirely different financial products and serve specific purposes. Let us know the key differences between home loan and LAP.

 

What is a home loan?

As the name says, a home loan is a kind of credit that you can avail to purchase a new home or an under-construction home. You can also get a home loan to purchase a plot of land and build a house on it. A home loan is considered a secured loan, and to get the amount, you must meet the lender’s eligibility requirement and also comply with their documentation process.

Another important thing to know about home loans is that you can up to a maximum of 90% of the property’s value as a loan. And, you must fund the balance amount from your pocket, which you must pay upfront to the lender as down payment. This is an integral part of the home loan approval process.

Once you get the loan approved and sanctioned, you must repay the amount in small installments known as the EMIs (equated monthly installments) till the end of the loan term or until you repay the full amount. The EMI includes both the principal and interest levied by the lender.

 

What is a loan against property?

Loan against property, aka, LAP is a type of mortgage loan where you can use your existing property, it could be residential or commercial as a security, and pledge it with the lender to get a loan against it. The maximum amount you borrow depends on the value of the property you pledge. And, most lenders provide a maximum of 50 – 60% of the property’s value as loan. Also, generally, if you pledge a commercial property, like a warehouse, or manufacturing plant, you may get a higher loan.

Now that you know what home loan and LAP is, let us look at the differences between the two.

• Interest rate

The home loan rates are generally lower as compared to loan against property rate. The home loan interest rates vary from lender to lender, and the same is the case with LAP. As a loan applicant, you must do your research well about the interest rates offered by different lenders and choose the one that has the lowest interest. This will also help in making your EMI more affordable.

The mortgage rates also vary based on the kind of property you use as a collateral. If you pledge a commercial property, you have better chances of getting the loan at a lower interest rate.

• Usage

Another significant difference between home loan and LAP is the purpose for which you can use the funds. You can borrow a home loan only to buy a new ready-to-move property, an under-construction house or a plot of land. You cannot use the funds for any other purposes.

In contrast, LAP gives you more flexibility to use the loan amount for any purpose you want. The lenders do not have any restriction on the end usage of the money. You can use the money for business expansion, buying new machinery, paying hospital bills, going on an exotic vacation, etc.

• Tenure

When you apply for any kind of loan, you must consider the tenure carefully as it has a direct impact on the EMI and affordability. Home loans come with a longer tenure of up to 30 years. But you have the flexibility to choose the term as per your repayment capacity.

LAP, on the other hand, comes with a shorter duration. The maximum tenure for which you can borrow this type of loan is 15 years.

• Loan to value ratio

This is another important differentiating factor between LAP and home loan. When you apply for a home loan, the lenders approve a maximum of 80% of the property’s value. Whereas, for loan against property, the maximum amount you can get is 50% of the property’s value.

 

To conclude

Thus, home loan and loan against property have many differences and serve different purposes. Whether it's a home loan or loan against property, with India shelter you can get a loan with less documents. Simply visit www.indiashelter.in and then apply for your loan with a single click or just call on this toll-free number: 1800-572-8888

 

Difference Between Home Loan and Loan Against Property

Many financial institutions in India, including banks and non-banking financial companies or NBFCs offer different kinds of home loans to suit the needs of different people. You can get a home loan to purchase a new home, or you can even use your existing home as a mortgage to get a loan against property. However, many people, especially first-time loan applicants tend to get confused about these loans and don’t know the difference.

Both home loan and loan against property, which is also known as a mortgage loan or LAP, are entirely different financial products and serve specific purposes. Let us know the key differences between home loan and LAP.

What is a home loan?

As the name says, a home loan is a kind of credit that you can avail to purchase a new home or an under-construction home. You can also get a home loan to purchase a plot of land and build a house on it. A home loan is considered a secured loan, and to get the amount, you must meet the lender’s eligibility requirement and also comply with their documentation process.

Another important thing to know about home loans is that you can up to a maximum of 90% of the property’s value as a loan. And, you must fund the balance amount from your pocket, which you must pay upfront to the lender as down payment. This is an integral part of the home loan approval process.

Once you get the loan approved and sanctioned, you must repay the amount in small installments known as the EMIs (equated monthly installments) till the end of the loan term or until you repay the full amount. The EMI includes both the principal and interest levied by the lender.

What is a loan against property?

Loan against property, aka, LAP is a type of mortgage loan where you can use your existing property, it could be residential or commercial as a security, and pledge it with the lender to get a loan against it. The maximum amount you borrow depends on the value of the property you pledge. And, most lenders provide a maximum of 50 – 60% of the property’s value as loan. Also, generally, if you pledge a commercial property, like a warehouse, or manufacturing plant, you may get a higher loan.

Now that you know what home loan and LAP is, let us look at the differences between the two.

• Interest rate

The home loan rates are generally lower as compared to loan against property rate. The home loan interest rates vary from lender to lender, and the same is the case with LAP. As a loan applicant, you must do your research well about the interest rates offered by different lenders and choose the one that has the lowest interest. This will also help in making your EMI more affordable.

The mortgage rates also vary based on the kind of property you use as a collateral. If you pledge a commercial property, you have better chances of getting the loan at a lower interest rate.

• Usage

Another significant difference between home loan and LAP is the purpose for which you can use the funds. You can borrow a home loan only to buy a new ready-to-move property, an under-construction house or a plot of land. You cannot use the funds for any other purposes.

In contrast, LAP gives you more flexibility to use the loan amount for any purpose you want. The lenders do not have any restriction on the end usage of the money. You can use the money for business expansion, buying new machinery, paying hospital bills, going on an exotic vacation, etc.

• Tenure

When you apply for any kind of loan, you must consider the tenure carefully as it has a direct impact on the EMI and affordability. Home loans come with a longer tenure of up to 30 years. But you have the flexibility to choose the term as per your repayment capacity.

LAP, on the other hand, comes with a shorter duration. The maximum tenure for which you can borrow this type of loan is 15 years.

• Loan to value ratio

This is another important differentiating factor between LAP and home loan. When you apply for a home loan, the lenders approve a maximum of 80% of the property’s value. Whereas, for loan against property, the maximum amount you can get is 50% of the property’s value.

 

To conclude

Thus, home loan and loan against property have many differences and serve different purposes. Whether it's a home loan or loan against property, with India shelter you can get a loan with less documents. Simply visit www.indiashelter.in and then apply for your loan with a single click or just call on this toll-free number: 1800-572-8888