The loan market in India provides an individual with several financial solutions to build a dream house. Many terms are used for these solutions that may confuse borrowers. Among these the three major ones are loans against property, home loans, and mortgage loans. A loan against property is a mortgage loan. Many times, home loans and loans against property are also used interchangeably but they are categorized as different loans.
A home Loan, Mortgage or Loan against property looks and sound similar – however there are technical differences across all three products.
Home Loan vs. Loan Against Property
A home loan provides funds to buy a new house, a plot you plan to build on, and property under construction. If individuals already own a piece of land, they can use the home loan credit to construct or renovate or expand the house. A housing finance institution can sanction a home loan for residential property only and not for commercial property. The borrower must pay a down payment for this loan which is also popularly known as seed money.
A loan against property, as a mortgage loan, is available for property owners. They can mortgage their existing residential or commercial property to get funds from the lending institution. The borrower submits property documents to the lender for the period of the loan repayment.
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Loan Value
The loan is sanctioned for a value equal to a percentage of the market value of the collateralized property. A loan against property can provide you 50 – 60% of the market price of the property. In comparison, a home loan can provide up to 90% value of the house/plot you want to buy.
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Interest Rates
Borrowers need to pay higher interest on loans against property as compared to home loans. This is because the Reserve bank of India (RBI) and the government together try to make housing solutions affordable for all.
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Usage of availed credit
A home loan credit can be used to purchase a ready-to-move-in house, residential property under construction, or a residential plot only. In contrast, one of the benefits of a loan against commercial property/residential property is the unrestricted end-use of the funds. You can also utilize the funds for your business expansion, child’s education, or any other purpose.
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Loan Tenor
Generally, a home loan tenor may go up to a maximum of 30 years, and a loan against property can be availed for a maximum tenor of 15 years.
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Tax Benefits
In the case of a loan against property, the tax benefit depends on the end-use of the loan amount.
– If the funds are used for business purposes, the borrower can claim the interest, u/s 37(1) of the Income Tax Act.
– If the funds are used to purchase a home, the borrower can claim the interest, u/s 24(b).
In the case of home loans,
– borrowers can take benefit u/s 80C of the Income Tax Act on the principal and u/s 24(b) on the interest.
Thus, this comparison can help borrowers to decide on the type of loan as per their requirements. Make sure you compare loan options offered by different banks and NBFCs (Non-Banking Financial Corporations) to find an affordable one. As per economists, the RBI may increase the repo rate from the second half of 2022. Such a raise will lead to increased home loan EMIs. If you want a more flexible and affordable loan, you can consider a loan against securities.
Benefits of Loan Against Securities for Borrowers
A loan against securities provides funds which act like an overdraft facility. You can collateralize your shares, debentures, mutual funds, bonds, fixed maturity plan (FMP), insurance, and other securities which are in demat form. Following are the benefits that make borrowers prefer this loan:
1) Flexible loan
A borrower can repay a loan against security in a flexible manner.
– You can decide if you want to repay the interest and principal or only interest by setting off the principal against the collateral.
– You can set uneven EMIs over the tenor.
– There are no prepayment charges.
2) Interest rate
You can avail of these loans with leading financial service providers at a low interest rate. It is as low as 7.5% through RURASH Financials.
3) Pledge a variety of securities
Leading lending institutions allow you to select the securities from a list of 800+ approved securities.
4) Switch pledged securities
You can switch the collateralized securities with other securities available in the approved list.
5) Instant processing
Leading lending institutions allow you to select the securities from a list of 800+ approved securities.
6) Multi-purpose loan
You are free to use the accessed funds against your collateralized securities. You can use it for your personal requirements like building a home, business requirements, or any contingency.
Thus, an individual can utilize his/her financial securities to access funds to have a dream home at flexible terms.
For the instant processing of loans against securities, lowest interest rates, and hassle-free financing, you can connect to RURASH Financials. You can fulfill your financial requirements of up to Rs 100 Crores through a loan against securities.
Connect with the relationship manager now or write to: loan@rurashfin.com