Indian financial ecosphere saw an increase of 33% in loan against property by the end of September 2018. Whereas, housing loans grew by 16% in the fiscal year 2018 and are expected to grow more with several government initiatives like PMAY, etc. The increasing demand for housing and mortgage loans illustrate customers’ comfort in availing loans and their purchasing power.
These two kinds of mortgage loans are offered by several financial companies. Nonetheless, the two are quite different from one another in various aspects, as mentioned below.
Reason to avail or end-use restriction
In case of a loan against property, individuals mortgage a valued property in exchange for funds from the financial institution. The funds so availed can be used for any purpose like meeting educational expenses, medical expenses, etc.
Whereas, home loans are availed in case an individual wants to purchase a property or intends to construct a house. Here, the amount availed can’t be used for any other purpose apart from buying or constructing a house.
Loan to value ratio
Loan to value ratio or LTV is the ratio between the loan amount and the value of the mortgaged property. The LTV ratio is different for loan against property and home loans.
In the case of home loans, financial companies want borrowers to make a down payment towards the purchase of a home. Usually, individuals are expected to pay 15%-20% of the property value as a down payment.
In the case of loan against collateral, customers can avail up to 75% to 90% price of the mortgaged property.
The loan amount is disbursed directly to the savings account of the borrower in case of Loan against property. Hence, customers have the leverage to use the funds in whatever way they want.
For home loans, the amount is disbursed to the seller or developer from whom one is purchasing the property.
Borrowers of home loans can avail tax benefits under Section 80C, 80EEA, and 24(b). However, individuals availing a loan against property can avail tax benefits only in specific cases. For example, if used for higher education, borrowers can avail income tax benefits under Section 80E.
Home loan eligibility required by financial institutions may differ from that of Loan against property eligibility. Here are some general eligibility conditions based on an applicant’s occupation –
For home loans
- Salaried Indian individuals between age 23 and 62 years.
- Minimum work experience should be 3
- The minimum salary range may vary as per the city of residence and financial institution.
- Self-employed individuals should have an age between 25 and 70 years.
- Self-employed businesses should have a business venture of 5 years.
For loan against collateral
- Salaried employees of a public, private firm, or MNC with age between 33 to 58 years.
- Self-employed individuals should be between the ages of 25 and 70. Applicants will have to produce a valid source of income.
Individuals can qualify for a loan against property by meeting these eligibility criteria mentioned above.
Since property loans are secured forms of credit, they are available in a comparatively lower rate of interest. Further, several factors affect the interest rate for loan against property, such as –
- Property value & type (residential or commercial).
- Credit score and profile of the borrower.
- Tenor of Loan
Property loan are long tenor credits because of the significant amount available for borrowing. Financial institutions let users borrow funds and repay them for a tenor of up to 20 years.
In case of loan against property, the maximum tenor available on several options like condition and age of the hypothecated property, customer eligibility and their CIBIL score.
Learn More: loan against property