GET READY FOR AN INTRIGUING FINANCIAL SHOWDOWN!
On one end, we have the classic 'Home Loan', where dreams of cozy spaces come true, and on the other end, we have ‘Loan Against Property’, wherein you find a hidden treasure in your existing property. A battle between the comfort of your dream home and the power of property-backed flexibility.
LET THE CLASH BEGIN!
Let’s try to keep things crystal clear between the two in this article, often people confuse themselves between home loans and loan against property because the features and benefits are more or less similar.
Let’s explore in-depth the realm of Home Loan vs Loan Against Property.
First, let’s understand them separately to get a better overview on:
What is a Home Loan?
A home loan is a secured loan option that is generally designed to finance the purchase of a new residential property, to fund a renovation to an already existing property, purchasing of a resale property, etc. A fixed or floating rate of interest is charged on the loan wherein the buyer has to pay it on an EMI basis.
What is a Loan Against Property?
With loan against property, expenses like renovating your house, education expenses, wedding expenses can be covered; you can use the finance in investing, business expansion, or you can even channel it towards fulfilling that long-cherished travel plan you've been envisioning. It doesn’t stop here; LAP offers many more versatile financing options.
Why don’t we explore the top 6 contrasts between the two?
1. Nature of Home Loan Vs Loan Against Property:
Over here in LAP, you can take Loan against commercial or residential property or loan against a plot of land. As discussed above, there are a variety of reasons you can make up for taking this loan, debt consolidation, business or entrepreneurial goals, etc. In short, mortgaging your existing home in exchange for a loan for any purpose.
On the other hand, a home loan is mainly used for the purpose of purchasing or constructing residential properties or renovating. In short, enabling individuals to fulfil their dreams of owning a home by offering immediate funds.
2. Home Loan Vs Loan Against Property Interest Rates:
The interest rates between LAP and home loans vary for a number of reasons. Usually, LAP tends to have a higher rate of interest as compared to a home loan.
Now, why is that so? Well, considering the fact that LAP offers a range of versatile funding options and can be used for purposes beyond just real estate, it broadens the chance of defaulting among borrowers. Hence, the bank chooses to increase the ROI for this scheme.
Whereas home loans are considered a more secure and focused form of loan for banks due to the nature of the loan type. That’s why they also are likely to have a lower interest rate than LAP.
So, these were the Home Loan Vs Loan Against Property Interest Rates.
3. Home Loan Vs Loan Against Property Loan to Value Ratio:
The bank considers the income, job security, and job type before approving a Home Loan amount. The loan amount you get depends on the value of the property for loan against property.
For a Home Loan, taking a 30 Lac loan, the maximum permissible LTV ratio is 90% of the assessed value of the property. If your loan amount exceeds Rs. 30 Lacs and goes up to Rs. 75 Lacs, the maximum permissible LTV ratio is 80%. But for Loan Against Property, borrowers can get financed up to 60% value of the property.
4. What is the maximum tenure both can extend to?
The minimum tenure is 5-10 years, while you can extend to a maximum of 15-20 years or until your retirement age, whichever is more relevant to your situation. For home loans, the minimum tenure can be as short as 5 years, while the maximum tenure is usually around 30 years.
5. What are the Tax benefits there to offer?
Loan Against Property: Under section 24 (B), a salaried individual availing this facility can get tax deductions only if the loan amount is used to buy or construct a property, other than that, any other loan that is not approved for tax deductions, like marriage, education, travelling or renovating of property that has been pledged as security to get the loan.
Under section 37 (I) a loan taken for business purposes can get tax benefits like getting a tax rebate on the interest, processing fees, and documentation fees can be claimed as business charges. There are no tax benefits provided under section 80 C for LAP.
Home Loan: Under section 80 C of this loan scheme, you can avail of tax benefits if you’ve taken the loan to maintain or renew the house or for construction, you will get a tax deduction of 1.5 lakhs on the repayment of the principal amount. You can also include the stamp duty and registration fee under this, but only under the sanctioned limit on the repayment done.
6. What are the Top-up advantages you can get?
You can get extra funds on your home loan while using your home as collateral, and spend it as needed. You usually get lower interest rates than the unsecured loans, and your repayment process follows the same schedule as your original home loan.
You can obtain additional money on your existing LAP with your property as security. You can use the extra funds for various purposes, enjoy potentially lower interest rates, and pay back just like your initial LAP.
These were a few warring points that came to mind while writing this blog.
While we are at it, why don’t we look at some similarities too?
- The long tenure for repayments
- Can get you covered for sizeable expenses
- You can also make use of the Top-up advantages
- There are also facilities provided for balance transfer
TO END!
Finally, we’ve come to the end of the war, and both sides fought valiantly, but obviously there is no winner in this fight. We hope that this solves all the confusion you’ve been wanting to clear. As per your requirements, you can now choose the most suitable options available to you. If there is an immediate requirement to fund any event, you can opt for Loan Against Property.