There are many financial terms associated with housing loans, which might be confusing to you. Borrowers frequently mix up the words “home loan” and “loan against property,” which makes it even more difficult for them to understand the differences between home loan vs loan against property and it’s characteristics and advantages. In this blog, we have discussed the differences between a home loan and a loan against property to help you make the best decision.
What is a home loan?
A home loan is a loan you take to buy a house that is already constructed, a property that is being built, or a piece of land on which you want to build a house. The buyer is required to make a down payment because this is frequently a secured loan provided by banks or housing finance companies. The borrower must pay back the loan in monthly EMIs since the lender assesses a fixed or floating rate of interest on it. The lender remains the property’s owner until the borrower pays off the EMIs, at which point ownership is formally transferred to the borrower. If the borrower fails to make EMI payments, the lender may auction it off to recover losses.
What is loan against property?
A mortgage loan is known as a loan against property. A borrower can do this by pledging his current, privately held property in exchange for a quantity of money equal to a specific percentage of the value of the property that he already owns. He must hand over the ownership of the property to the lender until he pays back the loan, and just like a home loan, the loan is often repaid in EMIs that include the principal loan amount and rate of interest. Lenders may sell the pledged property to recover their investment if a borrower defaults on loan payments.
What Makes a Home Loan Different from a Loan Against Property?
The two types of loans are very different from one another when it comes to a few key factors that one considers when applying for a loan. These criteria are nothing less than deciding benchmarks and should help you determine which of the two possibilities is most practical for your situation.
1. Rate of Interest: There is a big difference in interest rates between a home loan and a loan against property. Home loans normally offer lower interest rates than property loans. This is because financial institutions and lenders think there is a higher chance that borrowers will not repay loans secured by real estate. Additionally, by lowering the interest rate on home loans, the Indian government and the RBI work to make housing affordable for all citizens.
2. Quantum of Loan: Home loans provide a higher percentage of the property’s value than property loans. This means that while mortgage loans can only lend up to 60–70% of the entire property value, home loans can provide up to 90%.
3. Loan Tenure: Both home loans and loans against property have longer loan tenure. Home loans, on the other hand, surpass loans against property in this situation and have a duration of up to 30 years compared to the 15-20 years of mortgage loans.
4. Timing of Loan Processing: The documentation processes for a home loan and a loan against property are very different. The procedure is comparatively simpler for a home loan, and lenders often finish the verification and documentation in around 15 days. However, the procedure is stricter and more time-consuming for loans against property. This is because lenders thoroughly inspect the property, taking into account records like the sale agreement and occupancy certificate, among others, to make sure there are no legal obligations.
Now, you can choose the best fit for you based on your financial situation. If you’re looking for any home loans or loans against property with minimum documentation and interact rates with flexibility, Sova FinServ is always available to guide and assist you through the complexities of the loan industry. Do not be reluctant to call the customer care line or visit our nearest branch. Our top concern is your financial stability with minimum hassles.
Frequently asked questions:Is a loan against property considered a home loan?
If the property does not already belong to the loan applicant, a home loan is a loan obtained to help with the purchase or construction of a new home. A loan against property, on the other hand, is obtained using an existing property as security and can be used for a variety of reasons.
Are both of these loans available to everyone for the same property?
It is not possible to obtain two loans on the same property because the property can only be used as security for one loan. However, anyone can apply jointly for a single loan on the same residence with his or her spouse or family members. The ideal combination for a better approval rate on a housing loan is having a spouse as a co-applicant.
Is the loan amount free from income tax?
Since the loan amount is not counted as part of your income when filing income tax returns, personal loans are often not taxable. This means that personal loans are exempt from income tax.
How do you repay a loan?
The loan is repaid in Equated Monthly Installments (EMIs) that include both principal and interest. Repayment via EMI begins the month after you get the full disbursement.
What use are Loan against Property suitable for?
Any loan secured by real estate, whether residential or commercial, may be used for both private and professional reasons. You can utilise it for anything other than speculative or illegal actions.
