Whether you need to buy a house, start a business or pursue higher education, applying for a loan always comes to the rescue of many. Amongst all the types of loans that are available , Home Loan and Loan Against Property are the two which are often confused with each other.
Even though both the loans fall under the category of secured loans, we can say that they are very much different from each other. Before digging into their differences, let’s first get to what these loans
What is Home Loan?
You take a home loan to buy a ready to move in house or an under construction property.
You have to pay an amount as down payment to the loan provider. The loan provider charges a fixed or floating interest rate on the loan. Then as the home buyer you must repay the loan in EMIs. The loan provider continues to remain the owner of the property until the borrower pays off the EMIs. After the payment of EMIs, the ownership of the house is transferred to the borrower. If the borrower defaults on EMIs, the lender can auction the property to recover losses.
What is Loan Against Property?
Loan Against Property is basically a mortgage loan. You can avail this loan by keeping your I self-owned commercial/residential property as a collateral. You need to handover the property documents to the lender until the time you repay the loan.
Differences between Home Loan and Loan Against Property:
Collateral:
In case of secured loans, the borrower needs to provide the lender a security against the loan amount. In case if the borrower is not able to repay the loan, the lender will have full authority to sell off the asset to recover their money.
The collateral for loan against property is an existing property of the borrower. Whereas, the collateral provided for home loan is the new property itself for which the home loan is taken. The lender remains the owner of the property till the time the entire loan is repaid.
Usage of Loan:
A home loan is used to purchase a ready to move in or an under-construction residential property.
Whereas, loan against property can be used for both business and personal requirements. There is no end-usage restriction on loan against property.
Loan Amount:
Real estate is expensive, so in order to buy a new house a lot of money is required. Home loans grant a higher loan amount compared to the value of the property – up to 90%. So if the value of the property you want to purchase is Rs. 50 Lacs, then you can get a loan amount up to Rs. 45 Lacs.
However, for loans against property, the loan amount offered is generally up to 60-70% of the property value.
Rate of Interest:
The rate of interest for home loans is generally less compared ton that of loan against property. This is because of the various schemes by government and the Reserve Bank of India (RBI). These schemes, for an example PMAY aim at making housing affordable for all.
Top-Up Facility :
Most of the loan providers offer a top up loan on loans against property. This means that you can get more funding on your existing loan. This can be a great boost to serve your pecuniary requirements.
However, Home loans normally don’t come with this facility, but if you opt for Home Loan balance transfer then you may get a top-up loan. You can avail these loans at competitive rates and use them to pay off your immediate debts or use it for home renovation.