A Property Loan enables you to borrow funds by pledging an existing property as collateral. In contrast, a Home Loan is used to purchase a property, where the property being bought serves as collateral. Making the best choice, however, requires knowing how it works and how it differs from House Loans. Read this post to learn more.
Property Loan and its Working Explained
Property loan is one of the most popular loan types in India. People use this loan to meet various financial needs. It is a secured loan where banks accept residential or commercial properties as collateral to grant your loan. It’s also crucial to remember that your loan application is evaluated using both your financial background and the property’s valuation. You can repay the loan in EMIs over its tenure. Remember that the bank can take your property and sell it to recover the debt if you fail to make your instalment payments on time.
Property Loan Features and Benefits
Property loans offer several features and benefits that make them an attractive option for borrowers. Here are some key features and benefits:
1. High Loan Amounts
When compared to unsecured loans, these loans offer high loan amounts due to the collateral provided. Banks are more confident in lending larger sums in these loans, making property loans suitable for financing significant expenses such as medical bills, home remodeling, or business expansion.
Long Repayment Tenure
Longer time frames for Property Loans enable individuals to handle their financial matters effectively by spreading the repayment over an extended period. The freedom to select a repayment duration ensures that borrowers can strategise their installments according to their income and financial responsibilities.
- End-Use Flexibility
Unlike other loans, Mortgage Loan are not restricted to specific uses, such as purchasing a home or other property. Rather, they provide you flexibility in allocating the borrowed money to other purposes, including paying for school, covering unforeseen medical expenditures, or even debt consolidation, allowing you to take care of your financial obligations in whatever best fits your circumstances.
How is it Different from Home Loan?
Here’s the key differences between a Home Loan and a Mortgage Loan:
| Aspect | Home Loan | Mortgage Loan |
| Purpose | For buying, building, or renovating a home. | For various needs like business, education, or personal expenses. |
| Type of Property | Available for residential properties only. | For residential, commercial properties, or plots. |
| Loan-to-Value (LTV) | higher, around 80%-90% of the property’s market value. | Lower, up to 75% of the property’s market value. |
| Interest Rate | Lower due to specific residential use. | Slightly higher for flexible use. |
| Repayment Tenure | Longer repayment tenure, often up to 15 years. | Shorter tenure, depending on the loan amount. |
| Tax Benefits | Available under Sections 80C and 24(b). | No tax benefits unless it is used for business purposes. |
| Usage Restrictions | Strictly for property-related purposes | Can be used for personal, business, or any non-specified purposes. |
| Documentation | Requires property-related documents like sale deeds, agreements, and income proof. | Involves extensive documentation, including proof of ownership of the property being pledged. |
| Risk to Borrower | Lower risk since the property purchased is itself collateral for the loan. | Higher risk as the loan is usually taken against an already-owned property. |
Conclusion
Property Loans allow you to unlock the value of your property to meet various financial needs. Unlike loans with specific purposes, they offer greater flexibility. It is different from a Home Loan since you borrow funds against already owned property, whereas in a Home Loan, you borrow to own a property. Understanding how Property Loan works helps you choose the right option for your financial needs.
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