Property Loan Vs Home Loan: A Comparison

Property Loan Vs Home Loan: A Comparison

The right loan can help people manage their finances better, but the wrong one can get them into a debt trap. Therefore, choosing the right loan based on your needs is crucial. There are numerous types of loan products and providers in the market. 

Home loans are among the most common loans opted for by people. It is taken for financing the purchase of a house or for its construction. Unfortunately, most people often tend to confuse home loans with property loans. 

However, there is a big difference between these two. Read on to learn how they differ. 

What is a home loan?  

A home loan, especially a bank loan for house, helps people purchase their dream house or construct one from scratch. Home loans are intrinsically secured as the house being bought/constructed acts as collateral for the lender. 

These loans are usually of high value and also have a higher tenure. The amount offered as a loan is a certain percentage (between 70% to 90%) of the property’s current prices. Home loans are provided at relatively lower interest rates as the risk of default is lower. 

In addition, the house is pledged as collateral which further minimizes the risk of the lending party. One can easily opt for a home loan from reputed financial institutions like PNB housing finance for the best rates. 

A quick glimpse into property loans 

A property loan also referred to as a loan against property or home mortgage loan, is a type of secured loan which can be taken to meet any financial emergencies. In this case, a property with high economic value is pledged to the lender as collateral against the loan. 

In most cases, people keep their land or home as collateral to obtain a loan. The amount is contingent upon the property’s current value. As a result, it is relatively lower than home loan tenures. 

Borrowers can get a loan of up to INR 5 crores, depending on the value of the property pledged. 

Comparing home loans with property loans 

Now that we know what these loans entail let’s dive deep to learn about their differences and similarities in various contexts. 

  • Purpose 

A home loan is taken to finance the purchase of a home or for its construction. On the other hand, a property loan can be taken to meet various financial obligations, including personal and business expenses. 

The lender does not restrict how the funds are to be used. However, home loan funds have limitations as they aren’t multi-purpose. 

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  • Loan-to-value ratio 

The loan-to-value ratio is calculated by dividing the loan amount by the property’s value. For example, if the loan offered is 80,00,000 and the property’s value is 1,00,00,000, the loan-to-value ratio will be 0.8 or 80%. 

The loan-to-value ratio for a home loan can be up to 90%. In the case of property loans, the loan-to-value ratio is between 60 to 70%, depending on the lender’s policies. Therefore, it is mostly lower than the ratio for a home loan. 

  • Interest rate 

The interest rate on a home loan is always lower than what’s charged for a loan against property. A high-interest rate converts into higher EMIs and outstanding balances. 

In most cases, the property loan interest rate is 1% to 3% more than home loans. So if you are looking for a loan against the property’s lowest interest rate, PNB housing finance should be your choice. 

  • Loan processing fee  

Most lenders charge a loan processing fee to disburse the loan amount into the borrower’s account. Generally, the loan processing fee is between 0.8% to 1.2% of the loan value for home loans. In the case of property loans, the processing fee is typically around 1.5% of the loan amount. 

In short, the loan processing charges for property loans are higher than for home loans. 

  • Repayment tenure 

The repayment tenure is the total duration for which the loan is borrowed. For example, home loans can have a repayment tenure of up to 30 years (360 months), much higher than any other loan. 

Property loans also have a higher loan tenure, but it’s lower than the duration of home loans. In most cases, property loan tenures can be up to 18 years.

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