What is the difference between a home loan and mortgage loan/ loan against property?

Posted by Sarita Yadav on September 14th, 2022

There are several financial jargons that mislead borrowers when it comes to house loans. Home loans are typically used to purchase a house, plot of land, or under construction property, among other things. A loan against property, on the other hand, is a secured loan that allows borrowers to satisfy their personal and commercial needs by mortgaging their property. Most individuals use these two terms interchangeably rather frequently. So, what are the main distinctions between house loans and loan against property? 

Home Loan:

A home loan is simply a loan taken out to buy a property that is under construction or a plot of land on which you want to build a house. This is a secured loan provided by banks or home finance businesses, with the buyer required to make a down payment. The lender charges a fixed or adjustable interest rate on the loan, which must be repaid in monthly EMIs by the property buyer.

Loan Against Property:

The main difference between a house loan and a loan against property stems from the fact that both are secured loans. Loan against Property is simply a mortgage loan. If the borrower fails to repay the loan, the lender may auction off the pledged property to recoup his investment.

Loan against property vs. home loan

Interest rate

The interest rate on a loan against property is normally slightly higher than the interest rate on a house loan. The reason for this is that mortgage loans have a greater default rate than conventional house loans. Furthermore, house loans have lower interest rates as a result of the Government of India's 'affordable housing for everyone' policy.

Purpose

Another major difference between home loan and loan against property is the purpose for which the loan is availed. Home loans are typically availed for the purpose of purchasing a home, plot, or a property under construction among other things. On the other hand, a loan against property allows you to mortgage your existing property in exchange for funds required for various personal reasons such as business expansion, funding your children’s education or wedding, medical expenses and so on.

Loan to value ratio

When you take out a house loan, you can borrow up to 90% of the property's worth. In contrast, the maximum loan amount sanctioned in the case of a mortgage loan is 60% of the property value, once the lender has examined the property. 

Tenure of the loan

This is another significant distinction between a house loan and a loan against property. Home loans are available for terms ranging from 20 to 30 years, depending on your loan eligibility, whereas a loan against property has a maximum term of 15 years. 

Tax exemption

While there is no tax exemption available for loans against property, there are many opportunities for tax exemption on house loans under Section 80C and Section 24 of the Income Tax Act.