You have several options to choose from when it comes to taking a loan. Home Loans are the most popular type of loan and are also known as mortgage loans. In India, housing finance offers two kinds of Home Loans; Loan Against Property (LAP) and Home Loan (HL).
What is the Difference Between LAP & Home Loan?
A LAP is secured wherein you pledge your property as collateral with the lender. The sanctioned amount is based on the property value. This type of Home Loan generally carries a lower interest rate than Home Loans and can be used for many purposes, such as business expansion, a child’s education, etc.
On the other hand, a Home Loan is availed for purchasing a house or a flat or constructing a house. The sanctioned loan amount is based on income, repayment capacity, age, etc. Home Loans generally carry a higher interest rate than loans against property. However, Home Loans offer certain tax benefits that LAP doesn’t provide.
LAP generally carries a lower interest rate than Home Loans. Loans against property interest rate start from 7.25% per annum, whereas Home Loans rate ranges from 7.99% – 8.50%. If you feel the interest rates are higher, you can easily apply for a Home Loan balance transfer.
A Home Loan offers certain tax benefits not available on a loan against property. You can avail of a deduction of nearly ₹1.5 Lakh on the interest paid on a Home Loan under Section 24 of the Income Tax Act. You can even avail of a deduction of up to ₹30,000 on the principal repayment under Section 80C of the Income Tax Act. These deductions are not available on loans against property.
The loan amount sanctioned for a loan against property is generally based on the value of your property. The maximum loan amount can be avail 60% to 70% of the value of your property. On the other hand, the loan amount sanctioned for a Home Loan is based on factors such as income, repayment capacity, age, etc. The maximum loan amount can get 80% to 90% of the cost of the property.
The period for a LAP ranges from 5 years to 15 years. On the other hand, the tenure for a Home Loan ranges from 15 years to 30 years.
The processing fee you need to pay for a LAP is 1% to 2% of the loan amount plus GST. The processing fee you need to pay for a Home Loan is 0.50% to 1% of the loan amount plus GST.
You don’t need to pay any prepayment charges on the loan against the property. However, Home Loans come with a prepayment penalty of 2% to 4% of the outstanding loan amount plus GST.
Most Home Loans are approved and sanctioned within 15 days and have a fairly basic documentation process. LAPs, on the other hand, take longer to complete since banks and lending institutions must first get the property valued and verify your personal information.
Which is Better: Home Loan Or Loan Against Property?
When choosing between a Home Loan and a LAP, you must consider many factors. Some of the key considerations include
The purpose of the loan: Home Loans are typically taken for purchasing a property, while loans against property can be used for several purposes, including business expansion, education, etc.
Loan amount: Home Loans typically have lower interest rates and offer higher loan amounts than loans against property.
Interest rates: Home Loan interest rates are generally lower than loans against property. Remember, you can apply for a Home Loan balance transfer if you are satisfied with higher interest rates.
Repayment tenure: Home Loans usually have longer repayment tenures than loans against property. So, there is more time to repay a Home Loan than a loan against property.
Tax benefits: Home Loans offer tax benefits per the Income Tax Act. However, loans against property do not offer you any such tax benefits.
Thus, it is important to consider all these factors before deciding which type of loan is better for you. If you are searching for a loan for a specific purpose, such as business expansion or education, a loan against property would be a better option. However, a Home Loan would be the better option if you want a loan to purchase a property.
If you need money urgently, a loan against property may be better since the approval process is usually faster than Home Loans. However, if you have the time to spare and want a lower interest rate, a Home Loan may be the way to go. Ultimately, it’s on you to decide what’s best for your circumstances. Do some research, crunch the numbers and make an informed decision.