Monday, September 16, 2019

4 Significant Differences Between Home Loan And Loan Against Property

India is known for its real estate industry, which ranks third among 14 other sectors that contribute to its economy. It is also the second largest employer and has projected a growth of 30% over the next few years. The real estate sector generally comprises of 4 sub-sectors, i.e. hospitality, commercial, retail and housing.

Indian real estate market is supposed to reach a market size of US$ 1 trillion by 2030 from the market size of US$ 120 billion in 2017. It is also expected that the sector will have a contribution of 13% towards the country’s GDP by 2050. Along with the massive growth in the real estate sector, there has been a rise in demand for residential places and offices.  This demand has led to the requirement of home loans and loan against property. 

Nevertheless, there may be a question about what is loan against property and a home loan. Most of the people have not any idea about home loan VS loan against property. Though both of the loans are inter-related with the purchase of property, however, there are certain aspects on which they differ.

Loan Against Property

To have a clear concept on what is loan against property you have to keep this fact in mind that it is a type of a secured loan that is taken against your private asset, i.e. a private house or an office.  The asset is kept as a security with your lender, who can transfer the ownership if you default on payment.

Home Loan

A home loan is availed to cater to the purpose of funding the purchase of an under-construction property, a residential place or a commercial property. In case of a home loan, ownership of the property you purchase lies with the lender until you complete paying your debt. 

Differences Between A Home Loan And Loan Against Property

Loan against property and home loan differ in:

1.      End-usage Restrictions-

A loan against property or mortgage loan will have no end-usage limitation and can be used for several personal or professional purposes such as higher education, expansion of business, meeting the cost of a wedding, dealing cash crunches, etc. Also, loan against property can help you consolidate all your existing debts and manage your finances.

A home loan is availed for the sole purpose of purchasing a residential or commercial property only.

2.      Tax Benefits-

For a loan against property, the tax benefit will depend on the usage of the money you have borrowed. If end-user of the loan amount is to fund the purchase of a property or house, then you can claim benefits under Section 24(b) of the Income Tax Act.

If you use the money to cater to business needs, then Section 37(1) of the Income Tax Act will be applicable to the claim of business expenditure.

While for home loans, you can enjoy two types of tax benefits. Firstly you can claim a deduction against your payment under Section 80C of the Income Tax Act, to a limit of Rs. 1.5 Lakh, exceeding which, the tax will get implemented.

3.      Rate of Interest-

The first question that arises when you apply for such loan is what is loan against property interest rate. The interest rate calculated on loan against property varies between a range of 11 % and 14%. It is usually higher than the rate of interest on home loans but lower than the interest rate on personal loans.

Home loans have a rate of interest that is lower than the interest rate on property loan and varies between a range of 9% and 12%.

4.      Tenure-

The tenure for a loan against property may last for 15 years.

Whereas, the tenure for a home loan is generally higher than the tenure of loan against property and may last for 20 years. You can effectively repay your existing loan by reducing the repayment tenure every time there is an increase in your income.

Many financial institutions and NBFCs provide reasonable interest rates, EMI tenure and other applicable charges like prepayment and foreclosure charges. Bajaj Finserv has introduced pre-approved offers to make the application process quick. These pre-approved offers are available on both secured and unsecured loans.

Additional Read: Eligibility Criteria for Qualify a Loan Against Property
Once you have proper knowledge about what is loan against property and home loan, you will be able to choose the loan that will be suitable for you. There are specific criteria and documentation that you need to prepare for, to be eligible for both the loans.

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