Home Loan vs. Loan Against Property – What’s the Difference?

Many first-time home loan borrowers fail to understand the difference between a home loan and a loan against property. Some people even believe these two types of loans are the same and tend to use the terms interchangeably. However, the truth is both LAP and home loan are completely different financial products, and they serve different purposes.

So, if you too, are looking for the best home loan offer in India, you must be aware of the key differences between a home loan and loan against property. In this guide, we do a home loan vs loan against property comparison to help you make the right borrowing decision.

Purpose of the loan

A home loan, as the name says it all, is specifically meant for buying a new or an under-construction property from a government body, a property developer or a seller. You can also use it to build your own home.

In contrast, a loan against property, also known as a mortgage loan, gives you the flexibility to use the funds to meet your personal or business needs.  You can use the money for, buying new business machinery, going on an exotic holiday, paying for a child's marriage or education, Consolidating debts etc.

Repayment tenure

When you apply for any kind of loan, be it a personal loan, home loan or LAP, the repayment tenure is one of the most important factors that you must consider as it has a direct impact on the EMI (equated monthly instalment) amount and affordability. If you have shortage of funds, and cannot afford making high monthly payments, you can opt for a longer repayment period.

When you do the home loan vs mortgage loan comparison, the repayment tenure or loan duration becomes even more relevant and important. Generally, the lenders in India give you the flexibility to choose the repayment period based on your repayment capacity. However, the maximum tenure for a home loan is 30 years. This gives you enough time to repay the amount without any hassles.

As compared to home loans, the loan against property has a shorter repayment duration, which varies from one lender to another. Some HFCs, like Aditya Birla Housing Finance Limited, offer LAP for a period of up to 20 years.

LTV – Loan-to-Value Ratio

When you do the home loan vs LAP comparison, you cannot overlook the LTV aspect. LTV is basically the ratio of the maximum amount that a financial organisation will lend against the value of the property.

As compared to loans against property, the LTV is high for home loans depending on your loan amount. Lenders like Aditya Birla Housing Finance Limited offer home loans of up to 90% of the property's value that you want to buy. This means you can easily afford a bigger and better home for your family. Also, the down payment you make, i.e., the funds you pay from your pocket, is only 10%.

The LTV for a loan against property is much less than a home loan. The maximum amount you can get mainly depends on the type of property you offer for a mortgage. Generally, the maximum amount you can get is 50% to 60% of the property's value. However,Lenders like Aditya Birla Housing Finance Limited offer upto 75% of the property's value for Loan against Property

Rate of interest

Unarguably, the most critical difference between a home loan and a mortgage loan that would matter to you is the rate of interest levied by the lender on the loan you avail.

In general, the home loan interest rates are much lower than LAP. Today, with intense competition among lenders in India, you can easily get a home loan at attractive interest rates starting from 8.5% per annum. However, the actual interest applicable to you will greatly depend on the lender's assessment of your eligibility based on income, credit score, age, profession, etc.

The mortgage or loan against property interest rates are usually higher than home loans. The interest rate levied on the loan would also depend on whether you mortgage a residential property or an industrial/commercial property. But nowadays, some lenders in India, like Aditya Birla Housing Finance Limited, offer home loans, i.e., starting from 8.6% per annum and LAP i.e. starting from 9% per annum

Tax benefits

Another critical aspect of the home loan vs mortgage loan comparison is the tax benefit associated with these loans.

As per the existing tax laws in India, both the principal amount and the interest amount you repay for a home loan are eligible for tax benefits. You can claim a deduction of up to Rs. 1.5 Lakh and Rs. 2. Lakh under Section 80 and Section 24 of the Indian Income Tax Act every year throughout the loan tenure or till you repay the full loan amount.

For loans against property, there are no separate tax benefits available. However, if you use the LAP for business purposes, you can claim the interest amount you repay as a business expense and reduce your overall tax liability for the year.

Thus, it is quite evident that home loan and LAP have more than one difference. And now that you know the differences, assess your exact needs and choose the right type of loan accordingly. Also, it is advisable to apply for a loan with reputed and credible lenders like Aditya Birla Housing Finance Limited, which has a reputation for offering the best housing loan solutions.

You can visit the official Aditya Birla Housing Finance Limited website to know more about the details and apply for the loan of your choice online. The simple application and approval process ensure you a smooth borrowing experience. Apply Now!