Secured loans have always remained popular among borrowers. Their interest rates are lower than those of unsecured loan agreements. Two of the most popular secured loans are Home Loans and Loans Against Property (LAP). A home loan is specifically for the acquisition or construction of property, while a Loan against property allows you to use the funds for your personal or other needs by using an existing property as collateral.
While both loans are secured against property, individuals often encounter the distinction between a Home Loan vs Loan Against Property (LAP).
While both LAP and Home Loans are against the properties, they are quite different from each other. Home Loans are meant to financially assist you in buying a new home. The home does not already belong to the borrower here. Whereas the LAP is usually against the properties already owned by you. The other major difference between these two property loans lies in the loan-to-value (LTV) ratio, interest rates, tenure, and tax exemption. Loan to value is the amount of loan you can avail of against the value of the property. Let’s explore these differences between LAP and Home Loans in detail.
Here are the key differences between a Home Loan and LAP:
| Parameters | Home Loans | Loan Against Property (LAP) |
|---|---|---|
| Interest rate | The interest rate on home loans is quite affordable. You can get a home loan with 8.7%-9.1% interest per annum. | The interest rate on LAPs is higher than on Home Loans. You can get LAP @10.50%-10.95% interest per annum. |
| Loan to Value ratio | You can access loans up to 90% of the home value, with this limit applicable specifically to loans up to Rs. 30 Lakhs. | You can avail of loan up to 60% of the loan value |
| Usage | The purpose of Home Loans is to enable borrowers to buy a new home | The purpose of a Loan Against Property is to provide funds to the borrower by providing property as security |
| Tenure | The tenure of Home Loans is generally up to 30 years. | The tenure of Loan Against Property is generally up to 20 years. |
| Top-up facility | You can avail of the top-up facility on Home Loans. | Top-up facilities on LAP are also available if you qualify for them. |
| Process of documentation | You need to submit your KYC details, income proofs, bank statements, and property details that you are willing to purchase. Once the sale is executed, the property papers are held by the bank. | You need to submit your KYC details, income proofs, bank statements, and property papers against which you are willing to apply for the loan. The mortgage will be created on the concerned property. |
| Tax exemption | Principal and interest payments on Home Loans are allowed as deductions as per the provisions of the income tax law. | There is no separate deduction available under the income tax law for interest on Home Loans. However, if the loan was taken for business, then interest on LAP can be claimed as an expense from your business income. |
Home Loans and Loan Against Property serve the financial interest of prospective property owners and property owners respectively. If you are looking to buy a new home, then you will need to go for Home Loans. Whereas in case you already own a commercial or residential property and require funds, then you shall go for a Loan Against Property. In both cases, choosing the right lender is important.
Axis Bank is a pioneering financial institution with an unbeatable record in the property loan segment. With one of the most affordable home loan rates, flexible terms, interest rate options, and quick processing, you can get your Home Loan instantly. You can avail of loans starting from ₹3 lakh and up to ₹5 crore. If you wish to know your EMI in advance before applying, you can use the Home Loan EMI calculator. You just need to enter the loan amount, tenure, and interest rate to know your EMIs and the total interest you will pay over the tenure of the loan. It’s time to fulfil your wish of buying your dream home with Axis Bank Home Loans.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.