As financial institutions provide an array of secured credit options, individuals often get confused about which one to obtain. Home loans and loans against property are two popular credit facilities individuals opt for today. Although apparently similar, these credit options differ greatly from each other.
Lets take a look at some of the basic differences between housing loans and loans against property.
End usage restriction
Individuals who avail loan against property in India can utilise the fund to fulfil any financial requirements, including home renovation, business expansion, higher studies abroad, etc. On the other hand, the housing loan amount can be utilised for ready-to-move-in properties or home construction purposes.
Loan to value ratio
The loan to value (LTV) ratio is up to 90% of the property’s market value for a housing loan. In contrast, for a loan against property the LTV ratio is up to 60-70% of the total property value.
Loan disbursement procedure
For loans against property, borrowers mortgage their properties to secure necessary funds. In contrast, individuals mortgage the home that they would purchase or construct to obtain the funds to buy it.
Repayment tenor
Though both these credit options are long-term financial commitments, the tenor for a loan against property is comparatively shorter than a home loan.
Tax benefits
Both home loans and loans against property applicants are eligible for several tax benefits. However, the benefits of interest payable are different from one another. For instance, LAP borrowers can claim tax deductions under Section 37 and Section 24, whereas Section 24, Section 80C and Section 80EE apply to a home loan.
Must Read: A Comprehensive Guide on Income Tax Calculator
Nonetheless, despite these differences, these credit options are long-term financial commitments. Thus, besides offering loan against property balance transfer facilities, lending organisations extend this facility to housing loans as well.
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