Difference between Home Loan and Loan against Property

When it comes to differentiating between home loan and Loan Against Property, general public often find the same confusing and thinks that both can be used interchangeably. In reality there is substantial difference between home loan and loan against property.

• Purpose of Loan

Home loan is generally granted for purchase of home or for renovation/alteration of existing home where as loan against property or LAP as it is generally known in market, is granted for meeting any need of the borrower and is granted against mortgage of existing property. Therefore, when a borrower wants to purchase an existing house or under construction house and approaches banker for funding, He would apply for home loan whereas when a borrower is already having any immovable property like residential house or shop or factory building or commercial building and He want to mortgage that immovable property for getting loan, he would apply for loan against property or LAP.

• End use of Loan

As mentioned above, Home loan is used for purchase/renovation/addition/alteration of residential house where as loan against property or LAP may be used for any of the following purpose:

1. Expansion of business
2. Meeting medical expense
3. Foreign travel
4. Marriage in family
5. Purchase of any other movable or immovable property
6. Any other purpose

• Given to whom

In case of Home loan, loan amount is not directly credited into account of borrower rather it is given directly to builder or seller of house from whom property is being purchased. In case of LAP, amount of loan is given directly into the account of borrower.

• Quantum of loan

Home loan is generally granted upto 90% of market value of property whereas loan against property or LAP is generally granted only upto 60% of market value of property. This is because housing for all is in the priority of every government in India.

• Interest and Tenure of Loan

Interest on home loan is generally for rate of interest in range of 8.75% to 11% depending upon profile of the applicant and property whereas interest on LAP ranges between 10.75% to 13% depending upon profile of applicant and property. Tenure of home loan is normally 20 to 30 years. Loan against property is normally for maximum tenure of 15 years.

• Tax Benefits

In case of home loan, tax benefits of interest repayment as well as principal repayment are available u/s 24 and u/s 80C respectively, where as in case of LAP, there is no such tax benefits. However, in case LAP was taken for business purpose, then any interest paid on such loan would be allowed as business expenses but no tax benefit would be available for principal repayment.

• Priority Sector lending

Home loans are considered under priority sector lending as per RBI master circular whereas LAP are not considered under priority sector, however, in case LAP are taken by MSME business entity or some other purpose classified as priority sector lending purpose, same will be classified under “priority sector”