Both home loans and loans against property are secured loans. In other words, in the case of both the loans, the lender offers a loan against a security, which is invariably a residential property in the case of home loans. In the case of loans against property, however, this property could be a residential or commercial property or even a piece of land. A home loan is a type of secured loan under which a borrower pledges the property which they have bought with the loan money as security. The papers of the property stay with the lender until the borrower has paid off the loan. In the case of a loan against property, the borrower avails of a loan against a property they already own. Let us now look at the different between the two in detail. 

Interest Rate

The government of India wants to make housing affordable for all. Therefore, it is not very surprising that home loans are the cheapest of all loans. Currently, the home loan interest rates start from 6.80% p.a. This is the lowest home loan interest rate. However, the final interest rate that a borrower gets depends on several factors, such as the borrower’s credit score and income, age, LTV ratio, etc. Interest rates for loan against property are slightly higher than the interest rates that lenders charge on a home loan. However, since loans against property are secured loans, these loans are also sanctioned at low interest rates. Currently, loan against property interest rates start from 8% p.a.

Loan-to-Value Ratio 

Yet another difference between a home loan and a loan against property is the loan-to-value ratio. The loan-to-value ratio is the percentage of the total value of a property that can be sanctioned as loan. For instance, if your home is worth Rs.1 Crore and your lender sanctions a Rs.80 Lakh loan against it, your loan-to-value ratio is 80%. In the case of home loans, lenders can sanction 85% to 90% of a property’s value as loan. On the other hand, in the case of loans against property, lenders sanction only 50% to 60% of a property’s value as a loan. The LTV ratio further goes down when the property pledged as collateral is a commercial property. 

Loan Tenor 

Since both home loans and loans against property are big-ticket loans, lenders allow borrowers to repay both these loans over a long repayment period. However, the repayment tenor is usually slightly longer in the case of home loans. In the case of home loans, lenders give borrowers up to 30 years to repay the loan. However, in the case of loans against property, the maximum tenor that one can avail of is usually 20 years. 

Tax Exemptions 

The biggest benefit of a home loan is that these loans come with tax exemptions. By availing of tax benefits available under Section 24(b) and Section 80(C) of the Income Tax Act, borrowers can avail of tax exemptions up to a maximum of Rs.3.5 Lakh in a financial year. Further, this exemption increases to Rs.7 Lakh when a husband and wife avail of a home loan together and are co-borrowers as well as co-owners. Unfortunately, loans against property do not come with any tax benefits. The tax benefits available on these loans depend on the use to which loan against property funds are put. 

End-Use Restrictions 

Lastly, while home loans come with end-use restrictions, i.e. the borrower can use the home loan funds only to buy a property, loans against property funds come with zero end-use restrictions and therefore, one can use the money as they please.