Home Loan vs. Loan Against Property – Everything You Need to Know!

Do you also dream of getting that perfect little house for you and your family? Are you still confused about all your available loan options? Do people have a lot of financial advice for you, but you cannot rely on them? Then come to the financial experts themselves!

First things first, let us get the confusion out of the way. We are aware of the ongoing home loan vs. loan against property debate. Many of us also tend to use home loans and loans against property interchangeably, although they are very different.

• A home loan is when you borrow money from a lender or bank to assist in buying residential property. It may also be applicable for the construction of a new house.
• A loan against property is when you take a loan for something (for example, education) by using your property as the security against the loan.

So, home loan or loan against property – we are sure that the difference between these two types of loans is now more evident to you. If you still have confusion, we are here to resolve all those queries popping in your head!

Home Loan vs. Mortgage Loan

Loan against property vs. home loan – choosing between the two has always been a tough call. So, let us delve deeper into the subject to help you make a wise choice! As different as home loans or loans against property are, so are their features and advantages. Even so, the similarity between the two is that both home loans and loans against property cover high-end expenditures.

Now, let us move forward to discuss the different factors that may influence your decision:

Home Loan

• It can be used to buy a ready-to-move-in house, to invest in a developing project, constructing a new home, getting home renovation or home extension.
• The LTV* of a home loan is up to 90% of the property’s market value.
• The interest portion of the annual EMI paid can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24. 
• The interest portion of the annual principal amount paid can be claimed as a deduction from your total income up to a maximum of Rs 1.5 lakh under Section 80(C). 
• Since a home loan tenure is usually longer, the home loan borrower can avail of its tax benefits for as long as 30 years.

Must Read: A Step-By-Step Guide on Home Loan Disbursal Process

*The loan-to-value (LTV) ratio is a measure comparing the amount of your mortgage with the appraised value of the property. The higher your down payment, the lower your LTV ratio.

An interesting point to note here is that a home loan EMI calculator enables you to calculate the Easy Monthly Installments (EMI) beforehand so you can plan your loans and expenses. Check out PNB Housing’s smart home loan EMI calculator by clicking here.

Loan against Property

• Mortgage loans can be used for business and any other personal requirements with no-end use restriction.
• The LTV* for a loan against property is up to 60-70% of the property’s market value.
• The interest rate charged on LAP is comparatively much higher than the interest component on home loan.
• The maximum loan term for LAP is 10-20 years while the maximum loan term in home loan is 30 years.

Loan against Property vs. Home Loan: Similarities

• Used to cover high-end expenditures
• Both secured loans have long tenures for repayment
• Repayment tenure can go up to about 20-30 years
• Balance transfer facility
• Top-up loan and other features available, depending upon the lender

Your financial requirement dictates the choice of loan you’re able to take up: home loan or loan against property. Here’s a further assessment of the similarities mentioned above for home loan vs. loan against property:

• Quantum of Loan
  Home loans provide a greater percentage of the property price than loans against property. This means home loans can provide up to 90% of the property value, while mortgage loans only provide up to 60-70% of the total property value.
• Interest rate
  Since the Indian government and the Reserve Bank of India (RBI) want to make housing affordable to all sections of society, the interest rates of home loans are much lower than that of loans against property. Thus, home loans have been made more affordable for the general masses.

Additional Read: How to Secure a Loan against Property

• Loan Tenure
  The loan tenure of both home loans and loans against property is pretty long. However, home loans surpass loans against property in this case and have a tenure of up to 30 years compared to the 15-20 years of mortgage loans.
• Top-up Facility
  you can avail a top-up loan on both home loan and loan against property subject to a consistent and good repayment record and also depends on the maximum market value of the property. It simply means you can get more funds for your present loan amount. The top-up feature in loan against property and home loan both allow you more flexibility and convenience, enabling you to use the same loan for different financial requirements as home interiors, furniture upgrade, and more. Home loans come with fixed amounts, and you cannot just add a top-up. However, some banks do offer this facility after a rigorous assessment.

Final Words

All this being said, only you can choose the right fit for you according to your finances. However, we at PNB Housing are always there to guide and assist you through the nitty-gritty of the lending world. Do not hesitate to walk into your nearest PNB Housing branch or ring up the customer care line. Your financial security is our priority!

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