Loan Against Property vs. Home Loan: Difference Explained

When it comes to financing a property, two of the most common options available to borrowers are a home loan vs loan against property (LAP). While both loans are secured against property, they cater to different financial needs and come with unique eligibility criteria, interest rates, tax benefits, and repayment terms.

A home loan is primarily meant for purchasing or constructing a residential property, whereas a loan against property allows homeowners to unlock the value of an existing property for personal or business needs. If you are unsure which option suits your requirement, this guide highlights the key differences between a home loan and a loan against property, helping you make an informed choice.

What Is a Home Loan?

A home loan is a type of secured loan offered by financial services like NBFCs to help individuals buy, construct or renovate residential property. This type of loan is mostly used for purchasing a new flat or house, constructing a home on your own land, buying a resale property and home extension or improvements.

In a home loan, the property being purchased is the collateral for the loan. You repay the loan in EMIs over a tenure that can go up to 30 years.

Also Read: Commonly Used Home Loan Terminologies

What Is a Loan Against Property (LAP)?

A Loan Against Property (LAP) is also a secured loan, but the funds can be used for any personal or business purpose, and not necessarily for buying property. This type of loan is commonly used for business expansion or working capital, higher education expenses, weddings or emergencies, debt consolidation and personal financial needs.

In LAP, you mortgage an existing residential, commercial or even industrial property to avail funds. Additionally, the property is used as a security, but the end-use is flexible, unlike a home loan.

Also Read: All About Loan Against Property: You Asked, We Answered

Key Differences Between Loan Against Property and Home Loan

When comparing a home loan vs loan against property (LAP), it is important to understand that while both are secured against property, they serve different purposes and have distinct features. Here’s a detailed comparison across key aspects:

1. Purpose

• Home Loan: Taken primarily to purchase, construct, or renovate a residential property. The funds must be used strictly for property-related expenses.
• Loan Against Property (Mortgage Loan): Borrowed by mortgaging an existing property. Funds can be used for personal needs, business requirements, or any other financial purpose.

2. Interest Rate

• Home Loan: Typically comes with lower interest rates as the loan is tied to purchasing or constructing a property, considered a safer investment.
• LAP: Interest rates are slightly higher due to the flexible use of funds and varied risk profile.

3. Eligibility Criteria

• Home Loan: Available to salaried and self-employed individuals with a steady income. Lenders primarily evaluate income, credit score, and employment stability.
• LAP: Eligibility depends on property ownership, market valuation, and borrower’s repayment capacity rather than income alone.

4. Loan-to-Value (LTV) Ratio

• Home Loan: Can fund up to 80–90% of the property value.
• LAP: Generally funds up to 50–60% of the existing property value due to higher lender risk.

5. Usage

• Home Loan: Restricted to property purchase, construction, or renovation.
• LAP: Flexible use—can fund business, education, medical expenses, or debt consolidation.

6. Tenure

• Home Loan: Offers longer repayment tenures, often up to 30 years.
• LAP: Shorter tenure, typically between 10 and 15 years.

7. Top-up Facility

• Home Loan: Some lenders offer top-up loans after part repayment, usually for property-related purposes.
• LAP: Top-up facility is available in some cases but primarily depends on property valuation and outstanding loan amount.

8. Documentation & Processing

• Home Loan: Streamlined process for salaried individuals, often pre-approved with minimal documentation.
• LAP: Requires extensive documentation including property valuation, ownership proof, and financial statements, resulting in longer processing times.

9. Taxation

• Home Loan: Tax benefits under Section 80C (principal repayment) and Section 24(b) (interest repayment).
• LAP: No tax benefits unless the loan is used for business purposes.

Summary

Choosing between a home loan and mortgage loan depends on your financial need: a home loan is ideal for acquiring or constructing a residential property, while a loan against property offers liquidity against an existing asset with flexible usage. Understanding mortgage loan vs home loan helps borrowers optimise their funds while making informed financial decisions.

Choosing Between Home Loan and Loan Against Property (LAP)

When Should You Choose a Home Loan?

You should choose a home loan if:

• You are buying, constructing, or renovating a home
• You want to claim tax benefits under 80C and 24(b)
• You need a higher LTV and longer repayment tenure
• You are eligible for PMAY or other government subsidies

When Should You Opt for a LAP?

You should consider LAP if:

• You own a property and need a large sum of money
• You need funds for business, education, or emergency use
• You do not want to liquidate investments or savings
• You are not eligible for unsecured personal or business loans

Benefits of Home Loan and Loan Against Property

When comparing lap vs home loan, it’s important to understand the distinct benefits each product offers to borrowers.

Home Loan: Key Benefits

• Lower Interest Rates: Typically more affordable due to the secured nature of property acquisition.
• Longer Tenure: Repay over extended periods, often up to 30 years, reducing EMI burden.
• Tax Benefits: Avail deductions under Section 80C (principal) and Section 24(b) (interest), lowering your taxable income.
• Structured Repayment: EMIs make repayment predictable and manageable.
• Financial Discipline: Regular EMI payments help inculcate disciplined financial habits.

Loan Against Property (LAP): Key Benefits

• Flexible Use of Funds: Can be used for business expansion, education, medical emergencies, or personal needs.
• High Loan Amount: Allows borrowing a significant portion of property value, providing substantial liquidity.
• Relatively Quick Approval: For existing property owners, LAP processing can be faster than unsecured loans.
• Longer Tenure than Personal Loans: Repayment period is typically 10–15 years, lower EMIs compared to unsecured loans.
• Top-up Facility: Many lenders offer top-up loans based on property value and repayment history.

By understanding lap vs home loan, borrowers can choose the right product based on their financial goals - whether it’s purchasing a home or unlocking the value of an existing property for other needs.

Use a Loan Calculator Before You Decide

Whether you are opting for a home loan or a LAP, using an online EMI calculator helps you plan your repayment efficiently. Many financial services now offer home loan EMI calculator and LAP EMI calculator, which shows you how much your EMI will be based on the loan amount, interest rate, and tenure. Comparing both types of loans gives you clarity on what fits your budget and long-term financial goals.

Final Thoughts

While both home loans and LAP are secured loans backed by real estate, the difference lies in their purpose, cost, tenure, and benefits. A home loan helps you build or buy your dream home with added tax advantages. LAP unlocks the value of an existing asset for flexible usage.

Choosing between them depends on your financial goal, repayment capacity, and urgency of funds. Always compare lenders, read the fine print, and ensure you borrow within your means.

FAQs

Q.1. What is the main difference between a home loan and a loan against property?

A. The main difference lies in the purpose. A home loan is used to buy, build, or renovate a residential property, while LAP allows you to borrow funds against your existing property for any personal or business use.

Q.2. Which one offers a lower interest rate: home loan or LAP?

A. Generally, home loans have lower interest rates compared to LAP. This is because home loans are considered less risky by lenders since they are tied to property acquisition.

Q.3. Can I get tax benefits on both home loan and LAP?

A. Tax benefits are available for home loans under Sections 80C and 24(b). Loans against property do not offer tax benefits unless the loan is used for business purposes, in which case the interest paid can be claimed as a business expense.

Q.4. Is there a difference in the loan amount I can get?

A. Yes. In home loans, lenders may offer up to 90% of the property’s value. In LAP, the loan amount typically ranges from 60% to 75% of the property's current market value.

Q.5. Which loan is better for business needs?

A. A loan against property is better suited for business needs since it offers large loan amounts and the end-use of the funds is flexible.

Q.6. What documents are required for home loan and loan against property?

A. For both home loans and loan against property (LAP), the following documents are typically required:

• Identity proof (PAN card, Aadhaar card)
• Address proof
• Income proof (salary slips, Form 16, bank statements)
• Property documents (sale deed, title deed, approved building plan)
• Bank account details
• For LAP, additional property valuation and ownership documents may be required

Q.7. Can I get a loan against property on a commercial property?

A. Yes. Unlike home loans, LAP can be availed on both residential and commercial properties. Lenders assess the market value of the property and repayment capacity before sanctioning the loan.

Q.8. How is loan tenure decided for home loan and LAP?

A.

• Home Loan: Tenure can extend up to 30 years, primarily based on the borrower’s age, repayment capacity, and lender policies.
• LAP: Typically shorter, ranging from 10 to 15 years, depending on the property’s value, loan amount, and borrower’s creditworthiness.

Q.9. Are there top-up loans available on home loans and LAP?

A. Yes. Both home loans and LAP may offer top-up loans:

• Home Loan Top-up: Usually allowed for property-related expenses like renovation or extension.
• LAP Top-up: Can be availed based on outstanding property value, and funds can be used for personal or business needs.

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