Both home loans and Loans against property (LAP) can help in fulfilling the monetary requirements of a borrower. The house being purchased can be used as security for home loans while any property owned by the borrower can be pledged to avail a loan against property.

There are many other differences between the housing loan and LAP, including the following:

  • Purpose of Loan:
  • While comparing home loan vs loan against property, the fundamental difference lies in the purpose of the loan. Home loans can be taken only to buy a new house, plot, or purchase an under-construction property. LAP also called mortgage loan can be used for any purpose including funding higher education, purchase of a vehicle, or planning a wedding, except for speculative purposes.

  • Interest Rates:
  • The interest rate is another differentiating factor between a housing loan and loan against property. Home loan interest rates are typically lower compared to that of LAP. Moreover, schemes by the government on housing loan such as PMAY help in more savings when taking a home loan.

  • Loan Tenure:
  • The loan tenure for repayment of home loans can be up to 30 years. The loan tenure for a mortgage loan, however, is lower and can be up to 20 years.

  • Loan Amount:
  • One of the key differences between home loan and property loan is the maximum loan amount. The Loan to Value (LTV) ratio of home loans can be up to 90% of the property's market value as assessed by the lenders. The LTV of loans against property can be in the range of 55-70% of the property value. The current market value of the property is dependent on various factors like the property’s age and location in both types of loans.

  • Tax Benefits:
  • Home loans are eligible for tax benefits for both the principal and interest components. A principal amount of up to Rs 1.50 lakhs is eligible for tax deduction under Section 80 C of the Income Tax Act. The interest paid on home loans can also enjoy tax benefits under Section 24(b). In the case of home loan against property, the availability of tax benefits is dependent on end-usage. If the mortgage loan was used for business purposes, the interest and the incidental costs could be claimed for benefits under Section 37(1) of the Income Tax Act. However, if the loan was used to purchase a house, the interest can be claimed for benefits under Section 24(b).

Mortgage Loan vs Home Loan in a Nutshell

Home loans are taken for the specific purpose of buying a house while loan against property can be used for varied purposes. Home loans can offer better interest rates, LTV, and tenure, while the lack of end-usage restrictions is a prime advantage of loans against property.

Learn more about your Home Loan Eligibility here.

DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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