HOME LOAN VS LOAN AGAINST PROPERTY:
KNOW THE DIFFERENCE
Choosing between a home loan and a loan against property (LAP) depends on your financial objectives. Understanding the key differences between these two products will help you make an informed decision based on your needs.
- A home loan is designed to provide funds for purchasing, constructing, or renovating a residential property.
- A loan against property (LAP) involves borrowing against the value of an existing property, whether residential or commercial.
- While home loans are intended for property purchase or renovation, LAPs offer more flexibility for addressing personal or business financial needs.
1.Definition
- Home Loan: A home loan is a loan taken to finance the purchase, construction, renovation, or extension of a house or apartment. It typically comes with a fixed or floating interest rate and is repaid over a tenure through Equated Monthly Instalments (EMIs).
- Loan against Property (LAP): A LAP is a loan where an individual uses an existing property as collateral to borrow funds. This property can be residential or commercial, and the loan amount depends on its value.
2. Purpose
- Home Loan: The purpose of a home loan is limited to buying, constructing, or renovating residential properties.
- LAP: A loan against property offers flexibility and can be used to meet personal or business needs, such as funding a wedding, expanding a business, or covering medical expenses.
3. Loan-to-Value (LTV) Ratio
4. Eligibility Criteria
5. Benefits
Conclusion
Understanding these distinctions will help you select the right financial product. If you are purchasing or renovating a house, a home loan is the ideal option due to its tax benefits and subsidies. If you need funds for other financial needs such as expanding a business or funding higher education using an existing property to take out a LAP can be a more suitable choice.
- Home Loan: Lenders typically provide 80-90% of the property’s value as the loan amount, with the remaining amount contributed by the borrower.
- LAP: In the case of a LAP, lenders generally offer 60-70% of the property’s value as the loan amount since it is secured against an already-owned property.
- The eligibility requirements for both home loans and LAPs are similar. However, there are some key differences:
- For Home Loan: Applicants must provide proof of the property’s purchase or approval for construction.
- For LAP: Borrowers need to submit proof of ownership of the property used as collateral.
- Both loans require documents related to identity proof, income proof, and residence proof, as well as a good credit score to secure favorable interest rates.
- Home Loan: Borrowers can enjoy tax benefits under the Income Tax Act, 1961:Section 80C: Deduction of up to ₹1.5 lakh on principal repayment. Section24: Deduction of up to ₹2 lakh on interest repayment.
- LAP: While LAPs do not offer tax benefits like home loans, they provide quick liquidity for a variety of personal or business financial needs, with flexible repayment options.
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