Amidst various types of loans, housing loans and loans against property are the ones that are popularly availed by common people. A housing loan is an amount sanctioned for purchasing a house or a property or construction of a house whereas a loan against property is the amount sanctioned by keeping a property as a security to facilitate the various purposes of an individual. Even though people might be confused with these two similar terms, there are several differences that one needs to keep in mind. Some of the differences are highlighted below.
Difference between home loan and loan against property
Both being secured advances have always been an aid to fulfill the high-end expenditures of common people. However, there are significant differences between the housing loan and loan against property with respect to nature, interest rates, tenure, exemption, etc.
Nature of Loan
A housing loan is an amount sanctioned for the purpose of building a house for construction or renovation of the resident whereas loan against property is the financial tool used when an individual already owns a property and can mortgage it for receiving a high-end advance to fulfill a predetermined purpose.
The interest rates of a housing loan usually range from 8.10% to 21.0%. On the other hand, the interest rates for a loan against property range from 8.80% to 24%. The housing loan interest rates are generally lower than that of a loan against property as the Central Government and RBI are focusing on lending helping hands to make affordable houses.
Quantum of Loan
As real estate price hikes are touching the sky, buying or building a house has become more expensive these days. It is the sole reason that housing loans grants up to 90% of the property value to facilitate an individual to purchase a property. On the other hand, only 60-70% of the property value is granted for a loan against property.
Both being high-value loans, the tenure is several years for a housing loan as well as a loan against property. The tenure of a housing loan typically lasts for about 30 years whereas, for a loan against property the tenure lasts up to 15 years.
Under section 80C & 24 (b) of the Income Tax Act, the borrower of a housing loan can avail exemption from taxes whereas there are no such benefits in case of mortgage loans. A lender of a housing loan is facilitated with a tax exemption of up to Rs. 1.5 lakhs on the principal repayment amount. An additional tax exemption of Rs. 2 lakhs on the interest amount can be availed.
Prepayment charges on Loan
As per RBI guidelines, the lenders of housing loans receive some relaxation for the prepayment charges on loans whereas some charges may be applicable for the lenders of loans against properties.
Nature of Property
A housing loan is sanctioned only for building or purchasing a residential property. On the other hand, an LAP can be sanctioned against a commercial, residential or industrial property.
Processing Time and Fees
While the processing is smooth and less time taking for a housing loan, the processing of a loan against property is bound to high restrictions and becomes a stringent process. The processing fees in both cases are one-time and non-refundable. The amount for this processing fee is up to 1.5% of the total amount for a housing loan whereas the processing fee for a loan against property is usually 1-2% of the loan granted.
A housing loan and a loan against property both serve a financial aid in the time of need for common people. These financial tools come as a boon for big dreams of middle-class people.