Difference between Home Loan and LAP

When in need, an average Indian avails of a loan from a bank or an NBFC. Some of the applicants may get confused when they hear the names of the banking services for the first time. Often such a situation arises when they don’t understand the difference between a loan against property and a home loan. 

When you check the features and benefits of a home loan and loan against property, you can easily recognize that both are quite similar. A home loan is a loan that you avail to buy a ready-to-move-in house, a plot of land where you plan to build a house, or a property under construction. It is also available to fund repair, extension, or renovation of the home the borrower already owns.

A loan against property or LAP is a mortgage loan where the borrower pledges a property to meet their personal and business requirements. It could be used to pay medical expenses, educational expenses, fund a wedding or vacation, business expansion, etc.

Home loans offered by banks or housing finance companies are often secured loans and hence, until the borrower pays off the loan amount in the predetermined EMIs, the lender continues to own the home or property. One of the major differences between a home loan and LAP is that the borrower must pay a down payment while availing of a home loan. 

In the case of a home loan, the ownership will be formally transferred to the borrower once the debt is paid in full. Just like a home loan, a loan against property is often repaid in EMIs. If any defaults occur in EMI payments, the lender can auction off the property to recover the financial loss. 

Home Loan Vs Mortgage Loan

Here is a comparison between LAP vs home loan.

Interest Rate Comparison of Home Loan and LAP

Check out the differences in interest rates of home loan vs LAP.

Disclaimer: The interest rates are subject to change as per lender’s discretion.

Difference Between Home Loan and Loan against Property

Let us check out some of the differences between home loans and LAP.

• Purpose: Home loans are used to purchase a house, a plot, or a property under construction. It is also available to fund repair, extension, or renovation of the home the borrower already owns. LAP is a multi-purpose loan that is availed by pledging property to meet their personal and business requirements.

• Interest Rate: Generally, the rate of interest on a loan against property is higher than that is offered for house loans interest rate. It is because the lenders think there are higher chances of having defaulted on loans against a property compared to home loans. Also, the Union government of India and RBI ensures that the housing finance is affordable resulting in reduced interest rates over home loans.

• Loan to Percentage Value: The loans against property provide up to 60% of the property value as a loan whereas home loans provide loans up to 90% of the property value.

• Loan Tenure: Home loans can be availed up to a maximum of 30 years but a loan against property has only 15 years as the maximum tenure.

• Tax Exemption: One of the notable differences between loans against property and home loans is the tax exemption available. Home loans have a tax benefit under Section 24 and Section 80C of the Income Tax Act for the interest paid on them and the actual principal amount respectively.

• Documentation Process: Compared to loans against property, home loans require around 15 days to be approved and sanctioned. It has a relatively simple documentation process. The loans against property take more processing time since the lenders need to get the property valued. They also check on the borrower’s personal information like address, credit score, etc. for verification.

• Top-Up Option: Most loans against property have the option of a top-up to get additional funding on your existing loan. It will help you meet other financial needs. However, home loans don’t offer such an option usually. Some of the lenders may offer top-up facilities after careful consideration.

Benefits of Home Loan and Loan against Property

Here are some of the benefits you can avail when you opt for a home loan or a loan against property.