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Home Loan

Before we get into the details, it’s essential to understand the difference between loan against
property and a home loan. Loan against property can be availed by those who own property and they can use that as a security against the loan, as collateral. A loan against property can be used for various reasons such as higher education, to clear debts, for domestic purposes or even for expanding an existing business. One can use his/her commercial or residential property or even a piece of land to avail of a loan against property. The amount of loan can be up to 70% of the property value or 5 crores, whichever is lesser.

On the other hand, the Home Loan is also a kind of loan against property. But the key difference between the two kinds of loan is in a home loan the loan is provided to buy the property, for which the loan is availed. The house does not belong to the applicant but it is mortgaged until the amount is paid in full. It can be used to purchase a new property, or to construct a new property. The amount of loan is much more than that of the loan against property. Customers can get up to 90% of the total valuation as the loan amount. The loan amount can be repaid in a time span of up to 30 years making it much more flexible than the loan against property.

In the case of home loan, the tenure is much longer. Hence it is way more easy to pay the EMI. The home loan has a lower interest rate. This makes it much more affordable compared to the LAP which has a slightly higher rate of interest. Home loans also come under the ‘Housing for all’ policy extended by the government as it is used to buy or build a property.The rate of risk is also less when it comes to home loans.

However, owing to the above-mentioned features, a loan against property can never be converted into a home loan. The function of the two loans is very different. Though one might
come to think that both the loans are almost the same because both the loans, individuals pledge the property. However, the conversion is not possible. If the individual is not able to pay the EMI amount shelled against the property, then the existing loan balance can be transferred
to another bank which is giving a lower rate of interest to repay the loan amount. Thus, the amount of transferring an outstanding loan from one institution to another is also possible. But there are a few things that should be kept in mind.

  • The individual should have a clean repayment record on the existing loan.
  • The individual should have made at least 12 repayments on time.
  • Some banks have a minimum balance outstanding to make the transfer.

On the completion of these conditions, it is possible to get some additional features such as top
up on the loan amount etc.