Home Loan is a loan that is offered to individuals by banks or NBFCs to buy a house. This amount has to be repaid by borrower to the lenders through monthly installments also known as EMI. However, loan against property is where you will receive money from bank by mortgaging your property. Here your property will act as a security deposit for the money that is rendered by the bank. And until the repayment of the loan amount the original documents of the property will be under banks custody. In case if the borrower fails to repay the loan amount, banks will move legal procedure to own the property.
Loan will be sanctioned by banks only up to 40% -60% of the property value, some banks might even sanction loan up to 70% of the property value. Interest rates on loan against property are higher than home loans. Here are some of the major difference between home loan and loan against property:
Home loan is granted for purchase or procurement of a house. Loan against property is used to grant loan for borrowers against the security of existing property. In simple, home loan helps in procuring a property whereas loan against property will help borrowers to get loan sanctioned on the basis of existing property.
Rate of interest on home loans is comparatively lower than ‘loan against property’. This is due to the reason of bank sanction loan against property and the chance of defaults.
- Quantum of Loan:
Home loans are granted by banks up to 90% of the property value however, loan against property is granted only up to 60% of the property value. The benefits on home loans are available as RBI and Government is promoting housing facilities all over country through banks. The aim is “housing for all”.
- Tax Exemption:
Tax deductions are available under section 24 for interest and 80C for principal on home loans. This benefit is not available for loan against property. However, in case if you are taking loan against property for business purposes, then tax deductions are applicable for interest under “income from business or profession”. And there is no tax deduction for principal of loan against property.
- Tenure of Loan:
Home loans can be granted up to 30 years considering the age and eligibility of the applicant whereas loan against property is offered only up to the tenure of 15 years by almost all banks and NBFCs.
- Prepayment Charges:
In case of home loan some banks will waive off prepayment charges as be RBI guidelines however this charge is applied on prepayment of loan against property.
All provisions, policies and procedures of home loan are relaxed and it is easier to get a home loan as compared to loan against property. There is lot of documentations and the process is quite time consuming for loan against property. It is even possible to get a home loan sanctioned within 15 days but loan against property takes longer time as banks and NBFCs has they need to check applicant’s details and property details.
Money received from loan against property can be freely used for various purposes as per borrower requirements. This amount cannot be used for stock market investment, gambling, speculative business and similar other needs. However home loans has to be strictly used for procuring a house. Banks will monitor home loans to check if it used for buying a house and site visits are conducted before and after sanctioning loan.
- Nature of Property:
Home loan is offered only for residential purposes like construction or buying a house. However, loan against property can be used for commercial, residential and industrial properties.
|Criteria||Home Loan||Loan against Property|
|Purpose||To buy a house||For any financial necessities|
|Interest||Lower than Loan against property||High|
|Quantum of Loan||Up to 90% of the property value||Up to 60% of the property value|
|Tax Exemption||Under section 24 for interest and 80C for principal||Applicable only on interest|
|Tenure of Loan||Up to 30 years||Only up to 15 years|
|Restrictions||Less restrictions, smooth processing||High restrictions and stringent processing|
|Prepayment Charges on Loan||Relaxation offered as per RBI guidelines||Charges are applicable|
|Monitoring||Strict monitoring by banks/NBFCs||No monitoring by lender|
|Nature of Property||For residential purposes only||For Commercial, Residential and Industrial purposes|
This differentiation between home loan and loan against property will help you in understanding the right type of loans for your requirement; this will help in getting the loan sanctioned quicker than usual.