There is a lot of scope for borrowers to get confused between home loans and Loan Against Property. Even so, because both the loans are referred to as mortgage loans. We need to understand the difference between these loans since both the loans are against the mortgage of property. The end-user is what makes it different.
SBI Home Loan is provided for the purchase of ready-built house/flat, the purchase of under-construction property, for construction of a house on a pre-owned plot, purchase of a plot and construction thereon, for repairs and renovations of the existing house, for the makeover of the existing house and the repurchase of residential property. A home loan cannot be utilised for any other purposes other than the ones mentioned above.
SBI Loan Against Property is a loan provided against the mortgage of a property you own. The loan can be utilised for any purpose. It can be utilised for wedding expenses, for a family trip, for medical expenses, for buying gadgets, for business purposes or even for purchasing another property. It can be used for any personal purpose except for speculation. A loan against property is similar to a personal loan in terms of end-use.
Several factors discriminate between a Loan Against Property from a Home Loan. Let us now look at the comparison.
Quantum of the loan
The quantum of the loan under SBI Home Loan will be up to 80% to 90% of the market value of the property. However, the eligible quantum depends on various factors like income, debt to income ratio, credit score, tenure, etc.
An LTV ratio of 65% is considered for a loan up to Rs. 1.00 crore and an LTV ratio of 60% for a loan above Rs. 1.00 Crore to Rs. 7.5 Crores under SBI Loan Against Property. A debt to income ratio of 50% to 60% is stipulated, depending on the loan amount.
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Rate of Interest
The rate of interest on home loans is much lower than the interest on Loan Against Property. A d loan Against Property is similar to a secured personal loan and is priced much higher than home loans. The rate of interest on SBI Home Loan varies between 6.80% to 7.50% p.a.depending on the loan amount. An addition, andal 0.15% will be charged for non-salaried borrowers, 0.10% for LTV ratio between 80% to 90% and for risk rating between 4 and 6. A concession of 0.05% will be allowed for women borrowers.
For SBI Loan Against Property, the interest rates will be 8.80% to 9.65% p.a.depending on the loan amount and source of income.
Both home loans and loans against property are available for high-end expenditure and cannot be repaid within a short period. The tenure for a home loan will be much longer than that of a Loan Against Property. The maximum tenure for SBI Home Loan is 30 years, and for SBI Loan Against Property, it is 15 years. The SBI Loan against property can be availed in joint names, and the maximum repayment period will depend on the age of the eldest borrower. The tenure is fixed to liquidate the loan before the most senior borrower is 70 years of age.
For home loans, you can avail of tax benefits for the paid under Section 2l4 and the principal under Section 80C of the Income Tax Act. For Loan Against Property, you can avail tax benefit for the interest paid under Section 24 of the Income Tax Act only if you have utilised the amount for funding your new home.
The turnaround time for home loans is much lesser than that of Loan Against Property. The lender does a thorough background check of the applicant and the technical and legal appraisal of the property, which consumes a lot of time.
Benefits of Home Loan and Loan Against Property
The benefits of a Home Loan and Loan Against Property are numerous and advantageous in their way.
|Home Loan||Loan Against Property|
|The purpose of the loan is home-related with several options like for the purchase of a house/flat, repurchase of a house/flat, purchase of under-construction property, construction of a house on a pre-owned plot, purchase of a plot and construction thereon and for renovation/repairs of the existing home.||No end-use restriction. Can utilise the loan for personal use like meeting wedding expenses, travel expenses, further eduction of children, purchasing another property (residential or commercia)l, medical contingencies, etc.|
|Can avail tax benefit under Section 24 and Section 80C of the Income Tax Act for the interest and principal amount.||Can avail tax benefit under Section 24 of the Income Tax Act for the interest paid on the loan only if the loan is utilised to purchase another property.|
|No prepayment penalty||No prepayment penalty|
|Nominal processing fee. The processing fee for SBI Home Loan will be 0.40% of the loan amount with a minimum of Rs.10000/- and a maximum of Rs. 30000/-||Processing fee for SBI Loan Against Property is1% of the loan amount with a maximum of Rs. 50000/-|
|Balance Transfer facility available||Balance Transfer facility available|
|Flexible tenure up to 30 years||Flexible repayment option between 2 years to 15 years|
|Escalation in property value||Funds available instantly|
If you already have a property and contemplating investment in a second property, you have two options. Either you avail of a home loan, or you avail of a loan against property by mortgaging the existing property.
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Comparing the advantages of a home loan to a loan against property, it is recommended to avail of a home loan for the simple reason that a home loan is available at a much lower rate of interest which will reduce the overall cost of the loan. Also, you get a repayment tenure of up to 30 years which makes the EMI affordable.
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