Applying for a loan can get confusing. There are various types of loans. A home loan and loan against property are two of them.
You might often use the same term for both of them. But a home loan and LAP loan are different. You take a home loan to buy a new house. In contrast, you take an LAP loan by mortgaging your existing property. You can use it for any purpose.
We will look at the difference between the two. So, you will not get confused when you apply for loan against property or home loan
Difference Between Home Loan and LAP Loan –
- Quantum of Loan
In the case of a home loan, the Loan To Value is higher. It means that the lender will lend a higher percentage of the value of the property. They might give you up to 90 percent of the property’s value.
However, in the case of a loan against property, you will get a lesser percentage. Your lender might give you only up to 75 percent of the value of the property.
- Rate of Interest
The loan against property interest rate is higher than a home loan. Guess why? It is because the government wants to make housing affordable for all. That is why you can get a cheaper loan if you want to buy a new house.
- Tenure of The Loan
Both lap loans and home loans have a quite long tenure. top-upSo, you can repay them over several years without worrying. That reduces the burden of your EMIs.
A home loan usually has a tenure of 20 years. In contrast, most LAP loans come with a tenure of fifteen years. However, lenders offer flexible repayment tenures these days. So, you can also pay off your loan earlier if you want.
- Top Up Facility
Loans against property have a top up facility. It means that you can get an extra amount within the loan tenure. It will help you meet your additional financial requirements.
Lenders don’t provide top-up facilities on home loans. However, there are exceptions too. Some lending institutions might give you a top-up on home loans after further evaluation.
- Purpose
You can use a home loan only to buy a new house. The lender does not allow you to use the home loan for any other purpose. They perform all the necessary checks before granting you the loan.
You can, however, use an LAP loan for any purpose. You have to keep your property mortgaged. However, the lending institution has nothing to do with how you spend the money. You can invest in your child’s higher education, their marriage, or for a foreign trip.
Whether you take a home loan or loan against property will depend on your purpose.
The Bottom Line
Knowing the difference between the two will help you make an informed decision while applying for a loan. Make sure you do your research and read all the documents before applying for the loan.