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With so many loan products available in the market, it is easy for borrowers to get confused. Most borrowers especially aren’t familiar with the difference between a loan against property (LAP) and a home loan as they have some similar features and benefits. Often, they even use these two terms interchangeably.
But a home loan and a loan against property are two very different products. Whether it’s home loan vs. LAP tenure or home loan vs. LAP documentation, both these products have distinct features.
In this article, we’ll break down what each of these loans means and how are they different from one another.
The major difference between a home loan and a LAP lies in their purpose.
A home loan is a loan that a borrower avails for buying a house, an under-construction property, a plot of land, or renovating an existing home. It is a secured loan with a fixed or floating interest rate.
A loan against property allows the borrower to avail of credit against an existing property. This means that the borrower has to mortgage their property in exchange for the loan amount. You can use a loan against property to fund big-ticket expenses like a medical emergency, higher education of your children, a luxury vacation, etc.
Let’s understand the difference between a home loan and a LAP in detail.
1. LAP vs. home loan interest rates
There is a significant difference between home loan and LAP interest rates. Home loans usually have a lower interest rate than loans against property. This is because lenders and financial institutions believe that there are higher chances of borrowers defaulting on loans against property. Moreover, the Government of India and the RBI strive to make housing affordable for all citizens by charging lower interest on home loans.
2. LAP vs. home Loan to Value (LTV) ratio
Lenders will evaluate your income, credit score, job security, etc. before approving the amount for a home loan. Similarly, they will evaluate the value of your property to approve the amount for a loan against property. For a home loan, you can avail of credit for up to 90% of the property’s value. However, with a loan against property, you can only avail of credit for around 60% of the property’s market value.
3. Home Loan vs LAP tenure
There is a vast difference between Home Loans vs. LAP tenure. Home loans usually have a maximum tenure of 30 years. But the maximum tenure for a loan against property is 15 years.
4. Loan against property vs. home loan usage
You can use a home loan only to buy a house, an under-construction property, or a plot of land. But a loan against property is more versatile. You can use it to fund hefty expenses like buying a car, funding a wedding, paying off debt, financing a medical emergency, expanding your business, etc.
5. Home loan vs. LAP documentation
The home loan vs. LAP documentation process is also very different. For a home loan, the process is relatively easier, and lenders usually complete the documentation and verification in around 15 days. But in case of loans against property, the process is stricter and more time-consuming. This is because lenders conduct a thorough evaluation of the property including documents like sale agreement, occupancy certificate, etc. to ensure the property is free of disputes.
6. Loan against property vs. home loan taxation
You can enjoy tax benefits under Section 80C with a home loan. It allows you to avail a deduction for up to Rs. 1.5 lakh on the principal loan amount. But there are not a lot of tax benefits for LAP. If you take a loan against property to buy a new house, you can get tax benefits under Section 24 of the IT Act.
7. Loan against property vs. home loan top-up facility
The last difference between home loans and LAP is the top-up facility. Most lenders offer top-up benefits for a loan against property. This means that you can receive more funds for your existing loan amount. It gives you more flexibility and allows you to use the same loan for multiple requirements. A home loan doesn’t usually come with this feature. However, some lenders and financial institutions may extend top-up benefits after conducting a thorough evaluation.
Here are some common features of home loans and LAP-
There can also be other similar features depending on the lender.
LAP vs. home loan is a confusing topic. But now that you know the differences, you’ll be able to make an informed decision based on your requirements. But if you’re in a sudden financial emergency or need credit to fund a big expense, you can avail of a loan against property from Tata Capital. With affordable interest rates and attractive benefits, you can finance your requirements without dipping into your savings.
Policies, Codes & Other Documents