How do Home Loans and Loans Against Property (LAPs) differ?

Individuals require loans for multiple purposes but end up getting confused between the options. Similar confusion arises when buyers use the terms NRI Housing Loan and NRI Loan Against Property (LAP) interchangeably, when in fact, both are completely different. 

An NRI Housing Loan is a high-value loan, taken to facilitate the purchase or construction of a new home. Whereas, NRI Loan Against Property is taken by keeping an already owned/existing property as security. This loan might be used later for a variety of purposes. Now let’s see how both of these loans differ. 

What is an NRI Housing Loan? 

Whether you want to purchase a ready-to-move-in house, land to build your house, or a property under construction, the loan you would take is an NRI Housing Loan. Banks and housing finance companies offer such loans and they are very secure. Although the buyer is needed to pay a down payment, and later he can repay the loan amount via monthly EMIs. 

What is an NRI Loan Against Property (LAP)? 

LAP and housing loans have one thing in common, that is, both are secured. This is why they both are taken to be synonyms of each other. 

However, a LAP is essentially a mortgage loan. The borrower can pledge his existing, self-owned property for a decided amount of money which equals a definite percent of the market value of the property that he owns. So he is required to handover the documents of that property to the lender until he repays the loan in EMIs. 

How NRI Housing Loans Differs From NRI Loan Against Property (LAP)

  • Interest Rate: The NRI Home Loan Interest Rates are lower than NRI LAP Interest Rates. This is because of the Government of India’s (GOI) “affordable housing for all” initiative which focuses on making housing facilities affordable for every citizen of India. Also, the chances of defaulting on mortgage loans are comparatively higher than regular home loans. Thus, it minimized the margin requirement of a home loan.

  • Purpose: The NRI Housing Loans are typically applied to purchase a house, a plot, or a property under construction. Whereas, an NRI LAP allows the individual to mortgage his existing property in exchange for funds required for various reasons (personal or professional). 

  • Loan to Value Ratio: Certain perks come with both loans. With NRI Housing Loans, you can get finance up to 90% of the value of your property. And for NRI Loan Against Property, you can get a maximum of 60% of the property value. 

  • Tenure of the Loan: Yet another difference between home loans and LAPs is that the former is provided for longer tenures of 20 to 30 years, whereas the latter comes with a tenure of 15 years maximum. 

  • Tax Exemption: LAP doesn’t let you avail any tax exemption, but home loans come with various provisions for the same as per Sec 80C and under Sec 24 of the Income Tax Act.

Hence, you might be able to understand now that both the loans are related to property but still are very different.

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