What and How to Choose between Home Loan vs Loan Against Property

Nowadays many loan products are available in the market based on their specific purposes and use. With so many products, it often becomes confusing for borrowers to familiarise themselves with the different terminologies associated with the loan. This is why often borrowers confuse two different loan products. One of the most popular examples of this is home loan vs loan against property. Though they sound similar, there are a lot of differences between the two. Let’s know in detail what they are.

What is a home loan?

It is essentially a secured loan offered by different housing finance companies and lenders. Here the borrower pays a certain sum as a down payment and the outstanding loan amount is repaid back in monthly EMIs.

In this case, until and unless the borrower pays off the outstanding EMI amount, the lender tends to enjoy the ownership of property. Also, lender can even auction the property off for recovering losses, only if a borrower defaults on EMI.

What is a loan against property?

This is essentially a mortgage loan where a borrower mortgages his self-owned existing property for a certain sum of money. This amount is equal to a specific percentage of the mortgaged property’s market value.

Here borrower handovers the property documents to the lender at the time of loan against property application. Also, a lender can auction off the mortgaged property if borrower fails in repaying the loan.

Home loan vs loan against property: Which one to choose?

Though both home loan and loan against property are secured loans, there are some major differences between these two credit facilities. One can easily choose any of these financing options according to his/her financial requirements by keeping the following in check:

• Purpose of availing of loan

When it comes to choosing between a home loan vs loan against property, the purpose of availing of a loan is considered. If borrowers intend to buy a plot of land or construct a new property, they can opt for a home loan. Thus, the purpose of a home loan is clearly defined.

While those who want to avail loan against property can use its fund in multipurpose ways. They can invest in funding education, expanding a business, etc. Also, it can be availed for funding other property purchase as well.

• Rate of interest

The interest rate charged on home loans is usually lower than other secured loans as it comes under priority sector lending. These loans are linked to MCLR (Marginal Cost of Funds based Lending Rate) and depend upon the borrower’s credit profile and lenders.

Contrary to this, the current interest rate on loan against property is higher than that of home loans. This is because these loans are not considered a priority sector because of their open-end utilisation. Also, its interest charges depend upon the borrower’s credit profile and the property being mortgaged.

• Loan tenor

Both home loans and loans against property are undoubtedly long-tenor loans. But it depends upon the duration of how long the borrower wants to take a loan.

Like, if the borrower is planning for a loan repayment within a span of 10 to 15 years, they can simply opt for a loan against property. All they need to do is check the eligibility criteria for loan against property.

However, if they intend to extend the tenor of loan, then they will not be eligible for a loan against property. This is because this loan is not permissible for such long tenors. In this case, borrowers should go for home loans as it is allowed for a tenor of up to 30 years.

Apart from this, loan tenor also depends upon several other factors like age and credit profile of the borrower, amount of loan being sanctioned, etc.

Having said so, most reputed financial institutions provide customised offers to their customers. These offers are available on various financial products like loans against property, home loans, etc. Interested borrowers need to enter their name and contact details into their existing lender’s website to check their pre-approved offers and their eligibility regarding the same.

Therefore, considering all this information, borrowers can easily differentiate between home loan vs loan against property offered by NBFCs and other lenders. Also, they can choose between the two by prioritising their requirements.