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.
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.
