17 FEBRUARY, 2022

Many people rely on different loans to achieve what they want. And why not? After all, loans have made fulfilling dreams easier. With loans, you can achieve your goals and conveniently repay them over many years as per your financial suitability. However, the availability of multiple options often creates confusions. For example, you might have wondered if home loans and loans against property are the same. Both involve a property, so can these be used interchangeably?

 

Certainly not. Though both are secured loans, many aspects make these two different from each other. If you have been planning to avail a loan, it would be best to know about each. Read on.   

 

  • Home loan

A home loan is a secured loan that you can avail to buy a house property. With a home loan, you can either purchase a ready to move house, the plot of land or under-construction property. When you avail a home loan, you borrow money and use the amount to buy your dream home. The lender has the ownership of the house until you repay the entire loan amount. If you are unable to repay the loan amount, the lender can attach and sell your property to recover the amount. 

 

  • Loan against property

A loan against property is a secured loan that can be used for any purpose. You can borrow funds by keeping your property as a mortgage with the lender. You can mortgage your industrial, residential or commercial property. To pledge your property, you need to furnish the property documents to the lender. These documents remain with them until you return the entire amount. 

 

Basis

Home loan

Loan against property

Purpose

You can avail a home loan to buy a house property.

You can avail loan against property to fulfill your different needs, be it business or personal. 

Tenure

The tenure of a housing loan is usually up to 20 years. However, it can depend on the borrower’s eligibility.

A loan against property is offered for a shorter tenure of a maximum of 15 years.

Interest rates

Compared to other secured loans, home loans have lower interest rates. The interest rates of home loans are usually starting from 6.5% -7 %.

The interest rates of loan against property are comparatively higher. 

Loan-to value-ratio

You can avail a home loan of up to 90% of the property value. That is, the LTV of home loans is up to 90%.

You can avail a loan against property of up to 60% to 70%. The LTV of Loan against property is 60%.

Tax benefits

You can claim tax deductions on home loan repayment under the Income Tax Act, 1961. You can claim a deduction for interest repayment of up to Rs 2 lakhs and on principal repayment of up to Rs 1.5 lakhs.

You can avail a tax deduction on interest repayment on loan against property only when you use the loan amount for house property repairs.

 

Both home loans and loans against property are secured. This means you can lose the property if you default on its repayments. But, both loans have different purposes and usages and, therefore, it would be best to understand the differences before you apply.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.