Home Loan and Loan Against Property

To meet any financial goal or emergency, individuals prefer to apply for a loan. While Banks and NBFCs render different loan options to different life events. The two important products are “Home Loan” and “Loan Against Property”
It is necessary for a client to know that there is a huge difference between a Home Loan and a loan against property. Let’s understand the difference:

A Home Loan is an unsecured loan option, usually taken by prospective homebuyers who want to buy a new home, plot, do construction on already purchased plot or buy an under-construction property from a builder or a seller. On the other hand, a Loan Against Property is a secured loan type that allows borrowers to meet financial needs for any major life event, fund business or use the loan amount for a medical emergency. As the name suggests, you have to mortgage your property in exchange for the loan amount. The amount approved depends on the value of the property you want to mortgage.

Let’s understand the difference between a Home Loan and a Loan Against Property, considering the various aspects related to both the loan types:

1.Interest rate: As compared to a Home Loan, a Loan Against Property has a high-interest rate. If a client is availing a Home Loan from a reputed institution or NBFC, can get the loan at interest rate 8.40% p.a. but he can avail a Loan Against Property at the rate of 9.10% p.a. depending upon the CIBIL Score and type of property.

2.Loan to value: Banks always considers income, job security, job type before approving a specific Home Loan amount. On the other hand, the loan amount a client can avail from a Loan Against Property is dependent on the value of the property. Usually, a client can get up to 90% of Property Value as Home Loan while a maximum of 60-65% of the loan amount is sanctioned in case of a Loan Against Property.

3.Usage: As mentioned earlier, a Home Loan should be specifically used for buying a house, plot or an under-construction property. Loan Against Property on the other hand can be used for anything – be it marriage, buying a car, medical emergency, debt consolidation or business purpose. The reasons to apply for a Loan Against Property may vary.

4.Tenure: The tenure of a Home Loan can be a maximum of 30 years. In case of Loan Against Property, the loan tenure can only be up to 15 years.

5.Documentation: In case of a Home Loan, the documentation procedure is simple. Banks can take around 15 days to complete the verification and documentation. But in case of a Loan Against Property, Banks have to do a thorough check of the property, evaluate the property details, property ownership, etc. which may take an extra time.

“My Rupee Mantra” Experts guides the client to take a decision to choose between a Home Loan and Loan Against Property depending on his financial requirements. If the client is facing a shortage of funds for any event, experts will suggest a mantra to opt for a Loan Against Property at an attractive rate of interest and terms. On the other hand, if the client is looking to purchase a house, flat or villa the experts will suggest a Mantra to opt for a Home Loan.