Loan Against Property Vs. Home Loan Where Should You Go for Loan?

Used interchangeably, loan against property and home loan are two different terms referring to two different loan types. From interest rate to tenor, collateral, and loan amount, the difference is visible everywhere. Which one you should opt for depends on your needs.

Here’s what all you need to know for informed loaning decisions.

Loan against Property defined:

When you pledge property as collateral with the lender for a loan, it’s Loan against Property. Think a self-occupied, self-owned, or rental residential property or commercial premises, such as a shop, office or warehouse, or a plot of land; everything can be mortgaged for the loan. As the loan is secured, you enjoy competitive interest rates, flexible terms, accessible documentation, and broad eligibility criteria. You can apply for loan against property at a bank, NBFC, or financial company. Loan against Property, mortgage loan, or simply LAP, all mean the same.

Home Loan defined:

You seek a loan for house construction, improvement, conversion, extension, or purchase of ready to move in property. That’s a home loan for you. The loan is sanctioned against the real property you wish to construct, purchase, improve, convert, or extend. With a home loan, you get the best interest rates across all borrowing options. The loan tenors are significant, but the eligibility requirements are strict, and the funds are earmarked for particular purposes only.

The comparison:

Let’s run you through how these products fare against each other on critical parameters.

1. Quantum of loan:

The LAP gives you funds worth 60 to 70% of the property’s market value, subject to the lender. The same for a home loan is up to 90%. However, you can always expect a top-up loan with LAP to meet any increased financial requirement. The top-up facility isn’t usually available with a home loan, though some lenders might offer it. The home loan might have the edge over the LAP in terms of quantum of the loan, but the top-up facility evens it out.

2. Tenor:

The tenor is the timeframe in which the loan needs to be paid off in full. Home loans usually come with lengthy tenors, up to 30 years, while the same for LAP is 15 years maximum. Plus, LAP is easier to get, thanks to broad loan against property eligibility criteria.

3. Usage:

The home loan comes with end usage restrictions. You can use the funds for the purchase of under-construction property or investment, extension, conversion or improvement of ready to move in home. On the other hand, LAP has no such onerous restrictions. Use the funds for surgery, business expansion, property purchase, or any other personal requirement; it’s up to you.

4. Interest rates:

The home loan is cheaper than LAP, thanks to lower interest rates. The home loan involves as low as 8.7% interest rates while LAP starts from 9.5% onwards. The difference in interest rates is due to the Government of India’s focus on making housing affordable. Check the interest rates with the lender before you apply for a loan against property for the best end of the deal.

Where to get?

Regardless of the loan, prefer a registered housing finance company that offers mild conditions, personalized service, lower interest rates, easy repayment schedules, the higher quantum of loan, and minimal paperwork. Plus, the loan against property eligibility should be broad to allow loaning for all. PNB Housing offers it all and more, and hence, fits the bill.