Home loans are taken based on an individual’s salary, while the loan against property is availed based on the property market value, and based on that, loans can be availed. The interest rates charged for the home loans are different from that of the loan against property. The loan against property is charged interest rates of 9-15% per annum, while the home loans are charged at 6.50%-9% per annum. Thus the interest rates charged on home loans are lower than the loan against property. Having an owned property is necessary for the availing loan against property. The banks have different criteria for the documents for different purposes. The type of loan to be availed depends upon the situation of the borrower. If having a lower income but an extra property, it is better to avail loans against the property. In comparison, in case of better income, it is always recommended to avail of regular home loans on a salary basis. The loans tenure also varies for different kinds of loans. The loan against property can be availed for a maximum of 15 years, while the home loans can be availed for a maximum of 30 years, depending upon the borrower’s age.
The loan against property is beneficial in such a way that the borrower does not have to hand over the property to the lender. The borrower has to mortgage the property documents to the lender and can continue the usage of the property. Once the loan is being repaid, the borrower can get the documents back. In case of a loan against property, no mortgage is being required. Only on the basis of the salary of the borrower, the loans are being approved. The higher the income, the higher is the eligibility of loans for the borrower, while in the case of the loan against property higher the market value of the property higher is the eligibility of the loans. Mortgage loans have higher interest rates than regular loans. Also, the CIBIL score of an individual is not given much importance in mortgage loans, while for home loans, utmost priority is given for the CIBIL score. The bank provides loans up to a maximum of Rs. Three crores for the home loans. While the liability for a loan against property is also the same, the bank approves 65-70% of the property value as loans for the mortgage.
The decision about the home loans & loans against property
Benefits of home loans
- Loans are charged lower interest rates compared to the loan against property. The bank charges interest rates of 6-9% on average for home loans.
- No mortgage of loans is applicable for the home loans. Loans are granted on the basis of the income of the borrower.
- Loans can be availed for a very long tenure. The maximum tenure of the loans is 30 years. However, the actual eligibility depends upon the age of the borrower.
- The loans are entitled to the tax exemption of Rs.2 lakh on interest amount under income tax section 24 and Rs. 1.5 Lakh on the principal amount under income tax 80C.
- The home loans can be availed from any lenders, which charge the lowest interest rates and lower processing fees. There are no restrictions against obtaining loans from the same bank wherein the borrower has a bank account.
Benefits of Loan against property
- The loan against property can be availed t a comparatively reasonable interest rate than personal loans, though higher than home loans. The bank charges 9-15% interest rates on the loans.
- For the approval of loans, the bank does not give much importance to the CIBIL score unless extremely poor.
- The bank also does not expect very high income for the approval of loans as there is surety with the lender through mortgage of loans.
- The bank also approves the loan against the property with minimal documentation as the property documents are only given major importance for the approval of loans.
- The loans acquired under the loan against property can be used for any purpose which same is not the case in case of home loans. Funds raised for home loans can be utilized only for housing purpose while as the funds raised for loan against property can be utilized for medical purpose, marriage purpose, business purpose, home renovation.etc.
Availing of the kind of loans depends upon the borrower’s situation, whether the borrower has lower income or higher income, and if the borrower has any extra property for mortgage or not. There are various benefits and drawbacks of home loans and loans against the property; thus, depending on the situation, the loan applicant should decide whether to avail of regular home loans or mortgage loans against property.