Home loans and LAP (loan against property) are two different types of loans that are often used interchangeably by borrowers. Home Loans and Loan Against Property both require an elaborate process that a loan applicant should know for differentiation and reach the right decision.
We will start the passage with their definition and starting rate of interest currently. After that, we will discuss major differences and other vital information regarding LAP and House Loans in India.
What is Home Loan?
A Home Loan is a form of secured loan to buy a property or apartment, build a house, and renovation of the existing property. Loan distributors and banks sanction these loans after checking eligibility, application, and capacity to pay back.
The lenders charge fixed or floating interest rates and fix an EMI for the repayment of the loan throughout the loan tenure. The maximum loan tenure is thirty years in India.
Point to consider: The ownership of the property stays with the lender until the borrower pays off home loan EMIs. Once all EMIs paid, ownership is transferred to the borrower formally. If the loan defaults, the lender have all the rights to sell and recover their loan amount.
Current Rate of Interest for Home Loans in India
The rate of interest for home loans varies from lender to lender. Loan distributors, banks and other financial bodies fix the rate of interest and processing charges as per their internal rules and regulations. However, the rate of interest for home loans starts from 6.5 per cent currently.
Tenure of home loans extends up to thirty years. So, if you plan for a home loan, calculate how much money you are going to pay in interest during the tenure. It will help in the home loan payback plan.
What is Loan Against Property?
LAP loan is also a secured loan against fixed assets and properties. A loan against property is basically a mortgage loan. The borrower pledges their property for a sum of money with the lender. The lender could be banks, loan distributors, and NBFCs. Financial institutions provide LAP in India for a certain percentage of the property value.
A borrower needs to submit the property documents to the lender for the loan tenure. The lender retains the right of the property until all the EMIs of the loan are paid in total. In case of defaults, the loan distributor or bank can seize the property and auction it off to recover the loan amount.
Rate of Interest for LAP
Interest rates for collateral-based LAP loans range between 8 per cent to 25 per cent per annum. Loan tenure can go up to twenty years.
Borrowers can avail the loan amount up to 90 per cent of the property value. Lenders provide 80 to 90 percent loan on the high-ticket properties worth of 2 crores and more. The final rate of interest and valuation vary from property to property. You can hire a professional valuator to know the value of the property or house.
Difference between House Loan and Loan Against property
Rate of Interest
The Government of India is promoting PMAY and other schemes for the “Housing for all” initiative. With Government’s support and RBI’s policy liberalisation, banks are providing an attractive rate of interest to home buyers. Because of these factors, the rate of interest is lower for home loans in comparison with LAP loans.
Interest rates of individual products are mentioned in the above paragraph. Please refer them.
Purpose of the Loan
The reasons for taking a mortgage loan are several such as higher education, wedding, business expansion, startup and so on.
Home Loans are specifically for the house. Borrowers use it for buying an apartment, renovation of the home or building a home. Loan distributors and banks do not approve a home loan for any other purpose.
Loan to Value Ratio
A loan to the property is the monetary value of the property on which the lender decides to give you a loan. Borrowers can get finance of up to 90 per cent of the property, whereas up to 80 per cent for LAP.
Note: Lender can consider up to 90 percent loan against property for high end assets, worth over 2 crores.
Borrowers can avail of home loans for up to thirty years. In India Loan against property or mortgage loans goes up to a tenure of twenty years.
Home loans in India come with several tax benefits under Section 80C and Section 24 of the Income Tax Act. There are no tax benefits on loans against property in India.
A loan against property or mortgage loans comes with the facility of a top-up loan. A top-up loan is an additional loan on the existing loan. You can use top-up for personal and commercial purposes.
There is no provision of the top-up loan with home loans. There might be some special arrangement that depends totally on the lender and borrower’s relationship and understanding.
Process and Valuation
Though LAP loans are easy to get, these financial products are time-consuming because of property valuation, physical verification, etc. Home loans take comparatively lesser days than loans against property for processing and documentation.
Loan against property and Home loans both are secured loans. These are significant differentiator factors of these two financial products. Understand the unique features, compare all the details from several loan distributors, banks, and financial bodies to arrive at an informed decision. Get a loan from a trustworthy loan distributor or bank.