What is the difference between Home Loan and Loan Against Property?
A Home Loan is a loan extended by a lender for buying a home. It includes a loan taken for buying a plot and/or constructing a house on that plot (plot plus construction loans are known as Composite Loans). It is offered against a home property that you intend to buy.
Whereas, a Loan Against Property (LAP) is offered against a property that is already in your name. Usually, Banks prefer to lend against a property that is under your possession i.e. against under self-possession. LAP can be taken for business use or even for personal use, say, education for children, marriage etc.
The LTV (Loan to Value) ratio in case of Home Loans is generally higher in comparison to LAP i.e. Banks lend more for buying a house in comparison to availing loan against a property.
Loan against property is a loan that is given against the borrower’s property. The property is mortgaged and a fixed percentage of the prevailing market value of the property is given to the borrower as a loan. This percentage normally ranges between 60% and 70% of the value of the property. There are many advantages to getting a loan against property.
• The amount of loan available will be much higher when compared to loans such as a Personal Loan.
• The repayment period of the loans is up to 15 years which is much higher than Personal Loans but lower than that of a regular Home Loan.
• The rate of interest is close to regular Home Loan rates.
Loan against property is generally used to raise capital for emergencies and other short term purposes instead of going for a Personal Loan. There is no prepayment penalty for these loans which is applicable in case of the Personal Loans and fixed rate Home Loans.
Home Loan is a loan that is given out for purchasing new property. This could be a plot plus house or a flat. Home Loans come with long tenures and lower interest rates and are ideal if you want to purchase a home for self-occupation.
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