Home loans and loans secured by property can look to be interchangeable even though they are distinct types of secured credit borrowing techniques. These two investment products do differ in some crucial fundamental ways, though. Therefore, candidates should be aware of the differences between property loans and home loans.
What Are Loan Against Property and a Home Loan?
A borrower may submit an application for formal credit access to a financial institution in order to buy a new home. This type of credit is classified as a home loan. Notably, the applicant may only utilize this sanctioned sum to purchase a home that is ready to move into or to build a new home.
As an alternative, a borrower might mortgage a property they currently own that is free of debt in order to obtain a specified credit amount from lenders. In this case, the borrower is free to use the approved credit amount for either private or business purposes due to the lack of an end-use limitation.
How Do LAP and Housing Loan Interest Rates Differ?
In home and property loans, the loan against property interest rates that a lender charges borrowers differs widely as well. The interest rate on a home loan is less than that of an LAP loan as a result of the RBI’s push for cheap homes.
To give an example, top financial institutions in India pay salaried and professional borrowers who apply for a home loan an interest rate of about 8.30%. On the other hand, for this same group of people, the cost of borrowing on a loan against property is currently around 9.50%.
What Are the Differences Between Loan-To-Value [LTV] Ratios for Home Loans and Loans Against Property?
The percentage of the appraised value of the collateral property that lenders can grant a borrower as credit is referred to as the loan-to-value ratio. The LTV ratio for these two categories of secured loans varies significantly depending on the risk factors involved for financiers.
The LTV ratio of the sanctioned credit amount when a borrower files for a house loan may reach 90%. However, when it comes to loans secured by real estate, the applicant may be deemed a high-risk borrower if the market value of the property is near to the amount owing to lenders. The LTV ratio for an LAP is therefore restricted to 60%–75%. However, some financial institutions do approve a bigger amount while taking the borrowers’ financial goals into consideration.
What Effect Does the Age of the Applicant Have on His or Her Eligibility for a Home Loan and Property Loan?
The age-related criteria for potential borrowers also significantly differ when it comes to salaried and professional borrowers.
To be specific, these people must be between the ages of 28 and 58 in order to qualify for a loan against property; the upper age limit refers to the borrower’s age at the time the loan matures.
However, these borrowers must fall between the age range of 23–62 in order to apply for a house loan.
The length of a housing loan differs from the length of a loan backed by property.
Both of the aforementioned secured loan types offer different repayment terms. For instance, the credit limit duration for an LAP is frequently about 15 years. For residential loans, the tenor can, however, be extended up to 30 years.
Certain borrowers are qualified for tax exemptions against a house loan under provisions under Sections 80C and 24 of the Income Tax Act, which have different tax exemption rules regarding a home loan and loans secured by property.
Likewise, borrowers who take out an LAP are qualified for a tax exemption under Sections 24(B) and 37(1).
The fundamental distinctions between property loans and home loans can thus be supported by the aforementioned elements of each type of credit. Therefore, taking into consideration these factors when choosing between such two secured loan types can allow the borrower to acquire the most beneficial option.
