Individuals require loans for various purposes. However, there are so many products in the market that a person can get easily confused. A prime example is a home loan and a loan against property (also known by terms such as a mortgage loan and LAP).
Some often tend to use the same term for these two different products. A home loan is a loan taken to facilitate the purchase or construction of a new home; the property does not already belong to the loan applicant. In contrast, a loan against property is taken by keeping an existing property as security, with the loan being used to fulfill various purposes. Here, we will discuss the differences between these two types of loans.
Home loan vs loan against property
When it comes to secured advances, borrowers often get confused between loan against property and home loan. Both these financing options come with a host of features to cover high-end expenditures. However, some significant factors differentiate them.
Home Loan vs. Loan Against Property
| Home Loan | Loan Against Property | |
|---|---|---|
| Usage | Only for the construction of a house or purchasing a ready-to-move-in property |
Can be used for both business and personal requirements with no end-usage restriction |
| LTV | Up to 90% of a property’s market value |
80% |
| Interest rate | Salaried- 7.99%* to 17.00%* p.a. Self-employed- 8.30%* to 17.00%* p.a Doctors- 8.10%* to 17.00%* p.a. |
8% to 20% per annum for salaried and professional applicants |
| Processing fees | Up to 4% of the loan amount | Up to 3.54% of the loan amount (inclusive of applicable taxes) |
Considering similarities, both secured loans come with a longer repayment tenor up to 32 years, balance transfer facility, top-up loan, etc. So, apply for one according to your financial requirements.
1. Quantum of loan
Purchasing a house is easily one of the biggest expenses an individual incurs in his lifetime. Real estate is expensive, and much money is required to get your own house. To this effect, home loans grant a higher percentage compared to the property’s value – up to 90%. But, loans against property generally offer up to 80% of the property value.
However, Loan against Property from Bajaj Finserv gives access to a higher loan amount that is enough to take care of the financial needs of most middle-class individuals.
2. Interest rate
The interest rate of the home loan is lower than that of a loan against property. It is because the government and the Reserve Bank of India (RBI) focus on making housing affordable for all, and the result of this is minimizing the margin requirement of a home loan.
3. Loan tenor
The tenure for both home loans and loans against property is significant. Typically, the tenure for home loans lasts for 30 years. A loan against property is also a high-value loan and takes several years to pay back.
Bajaj Finserv provides loan against property for tenors up to 15 years. Additionally,you can do a full or part pre-payment at any time with minimal charges.
4. Top-up facility
Most loans against property offer an option of top-up loan benefits. It means that you can get more funding on your existing loan. This feature brings in more flexibility, and you can use the money to serve different financial requirements. Home loans normally don’t come with this facility, though some banks offer them after further assessment.
Additional Read: A step by step guide to apply for a loan against property
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