Many first-time home loan borrowers find it challenging to understand the difference between home loan and loan against property or LAP. They believe that both are the same and tend to use the terms interchangeably. However, in reality, home loans and LAP are totally different financial products that serve different purposes. So, if you are looking to apply for a home loan, you know the difference between home loan and LAP so that you can make an informed borrowing decision.
When you apply for a home loan India, you must be careful about choosing the right tenure as it has a direct impact on the EMI and affordability. If you are cash-strapped and cannot afford paying a high EMI, you can opt a home loan with longer tenure. Typically, the financial organisations in India offer home loans for up to 30 years. The longer the loan tenure, the shorter the EMI and vice-versa.
In contrast, LAP has a much shorter repayment period but is higher than personal loans. You can get a loan against property for up to 15 years. This should give you enough time to repay the loan on time.
LTV – Loan to Value Ratio
The LTV refers to the maximum amount you can borrow based on the value of the property. For home loans, the maximum LTV is 80%. This means the lenders generally sanction a maximum of 80% of the property’s value as loan. You must pay the balance 20% amount from your pocket. This is known as down payment. You must pay this amount upfront and is an integral part of the home loan application process.
On the other hand, LAP has a lesser LTV. The maximum amount you can get as LAP is 50% of the property’s value as per the lenders’ assessment.
Purpose of availing the loan
You can get a home loan for buying a new or an under-construction property from the builder or a reseller. You can also use it for construction of your house on the plot that you own or is allotted to you by the government.
A loan against property is a multi-purpose. The lender does not have any restriction on how you spend the money you get. You can use the mortgage loan for buying an asset for your business, or for paying your child’s education fees.
Rate of interest
When you think of a home loan, you may invariably talk about the rate of interest levied by the lender.
The interest rate is one of the most important factors that distinguishes home loans and loans against property. The interest rates on home loans are generally lower than LAP. You can get a home loan starting from 6.70% per annum.
In comparison, the loan against property has a slightly higher interest rate than home loans. The interest levied by the lender depends on several factors like age and location of the property, type of property you pledge, etc.
Now that you know the differences between home loan and loan against property, assess your exact needs and apply for the right loan type to enjoy a hassle-free borrowing experience.