How is a Loan Against Property Different From a Home Loan

To meet any financial goal or emergency, individuals prefer to apply for a loan. While banks and other financial institutions render different credit options to different life events, some might get confused between the two loan concepts that sound the same, but aren’t so. 

These are loans against property and Home Loan. If you’re familiar with the credit types, then it is necessary for you to know that there is a huge difference between a Home Loan and a loan against property. Let’s understand the difference:

A Home Loan is an unsecured loan option, usually taken by prospective homebuyers who want to buy a new home, plot, or fund an under-construction property. On the other hand, a Loan Against Property is a secured loan type that allows borrowers to meet financial needs for any major life event, fund business or use the loan amount for a medical emergency. As the name suggests, you have to mortgage your property in exchange for the loan amount. The amount approved depends on the value of the property you want to mortgage.

Let’s understand the difference between a Home Loan and a Loan Against Property, considering the various aspects related to both the loan types:

1. Interest rate: Often, while applying for any loan, we as borrowers always consider the rate of interest along with other factors. As compared to a Home Loan, a Loan Against Property has a high-interest rate. If you’re availing a Home Loan from a reputed institution like ICICI Bank, you can get the loan at interest rate 6.80% p.a. You can also avail a Loan Against Property at the rate of 8.75% p.a. 
2. Loan to value: A bank always considers income, job security, job type before approving a specific Home Loan amount. On the other hand, the loan amount you can avail from a Loan Against Property is dependent on the value of the property. Usually, you are likely to get 90% of the Home Loan amount, while a maximum of 60% of the loan amount is sanctioned in case of a Loan Against Property. If you apply for a Loan Against Property, you can get a loan amount ranging from Rs 10 lakh to maximum Rs 5 crore.
3. Usage: As mentioned earlier, a Home Loan should be specifically used for buying a house, plot or an under-construction property. Loan Against Property on the other hand can be used for anything – be it marriage, buying a car, medical emergency, debt consolidation or business purpose. The reasons to apply for a Loan Against Property may vary. 
4. Tenure: The tenure of a Home Loan can be a maximum of 30 years. In case of Loan Against Property, the loan tenure can only be up to 15 years. 
5. Documentation: In case of a Home Loan, the documentation procedure is simple. Banks can take around 15 days to complete the verification and documentation. But in case of a Loan Against Property, it can be quite long as banks have to do a thorough check of the property, evaluate the property details, property ownership, etc. 
6. Taxation: When it comes to tax savings, a Home Loan is eligible for tax deduction up to Rs 1.5 lakh on the principal amount under Section 80C of the IT. On the other hand, there are not many tax benefits for a Loan Against Property, except if the loan amount is used to fund a new house under Section 24 of the IT Act.

The decision to choose between a Home Loan and Loan Against Property depends on your requirement. If you are facing a shortage of funds for any event, you can opt for a Loan Against Property against a Home Loan.

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