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Home Loan vs Loan Against Property

rajukumar (Student) (40 Points)

11 July 2016

I am considering to borrow some money against my flat in Bangalore which has been paid completely. But when I enquired with few banks, they said that they don't provide/sanction home loans against already owned property. Moreover they suggested that I need to opt Loan Against Property, which is much more expensive. Generally what I have known that home loans these days carries an interest rate of 8.5-10% and where as 'Loan against property' carries a rate of 13-14%.

For me it seems completely illogical that I can not avail 'home loan' on a fully paid property. Please suggest if I am missing something here?

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10 Replies

CMA Poornima Madhava (CMA) (13112 Points)
Replied 11 July 2016

Home loan is sactioned for the purpose of purchase/construction of house property. Now that you already have purchased the house property, this would not be applicable to you with respect to the subject property.

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Nitin Arora (Financial Audits) (53 Points)
Replied 11 July 2016

I agree that home loan is the best loan and the rate of interest of a home loan is pretty lower than any other loan. But the interest rate of a loan against property is also low. Loan against property is also a secured loan where you have to keep your property as collateral with the lenders, so the interest rate is low.

The rate of interest of a loan against property cannot be so high. The rate you have mentioned 13%-14% is the rate of any unsecured loan. But you are trying to apply for a secured loan. It should be between 10% and 11% and not more than that.

You need to do a comparison among all the banks and NBFCs in the market to find the lowest possible interest rate in loan against property and then apply for a loan. I would recommend you to apply for a loan in any NBFC as they charge lower interest and offer better facilities. Also they provide flexible options to repay your loan through EMI, prepayment, etc. which you can calculate yourself using any emi calculator for home loan online.

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CA Siddharth Agarwal (Chartered Accountant & Banking Professional) (264 Points)
Replied 11 July 2016

Home loan is meant for Purchase of Property only, since in you have already purchased the property & paid the full consideration it normally will not qualify for a home loan.

However some organisations (NBFC) can refinance the purchase, which can be booked as a HL, where in HL rates will apply.

1 Like

NN SHARMA (MANAGER) (26 Points)
Replied 11 July 2016

Please do not recommend NBFCs. Even though their ROI appears lower in some cases, their method of calculating interest and the drama they make when you try to close the secured loan is believed to be experienced.

I feel the best option is to compare ROI amongst different banks and choose the best one. State Bank group will be better bet. As far as not granting loan against existing house at lower ROI is for the reason that it is not considered as a priority advance as per RBI guidelines and generally loans are raised against finished houses for consumption purpose or aqire additional property or for some speculation purposes and carry higher ROI.

CA Siddharth Agarwal (Chartered Accountant & Banking Professional) (264 Points)
Replied 11 July 2016

Originally posted by : NN SHARMA
	Please do not recommend NBFCs. Even though their ROI appears lower in some cases, their method of calculating interest and the drama they make when you try to close the secured loan is believed to be experienced. I feel the best option is to compare ROI amongst different banks and choose the best one. State Bank group will be better bet. As far as not granting loan against existing house at lower ROI is for the reason that it is not considered as a priority advance as per RBI guidelines and generally loans are raised against finished houses for consumption purpose or aqire additional property or for some speculation purposes and carry higher ROI.

Sorry to Differ, but NBFC are also governed by RBI, and are bound by the same framework as banks, in terms of calculation of the ROI or foreclosure .

Though banks may be a prefered choice, but NBFCs are no less. From my persosal experience I can say that they are more flexible in terms of calculating eligibilities and products and policies.

To me a Bank, NBFC & HFC would not make much of of difference till the time the financial need is fulfiied and the dealing is fair.

"A Rupee lent by a NBFC would value the same as a Bank"

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Chinay Solanki (Chartered Accountant) (242 Points)
Replied 11 July 2016

Yes the rates are high in loan against property. But recently SBI have launched a new loan sales as asset backed loan, in which the loan is given against property and rate of interest is as low as in case of home loan. Go for it

Sai charan (Article Assistant) (72 Points)
Replied 12 July 2016

Originally posted by : NN SHARMA
	Please do not recommend NBFCs. Even though their ROI appears lower in some cases, their method of calculating interest and the drama they make when you try to close the secured loan is believed to be experienced. I feel the best option is to compare ROI amongst different banks and choose the best one. State Bank group will be better bet. As far as not granting loan against existing house at lower ROI is for the reason that it is not considered as a priority advance as per RBI guidelines and generally loans are raised against finished houses for consumption purpose or aqire additional property or for some speculation purposes and carry higher ROI.

Amit Kumar (4 Points)
Replied 30 March 2018

Home Loans-

It’s a kind of loan which is mainly used for purchasing a Home, Home renovation or acquiring a residential property.
And Most of Lender takes the paper as a collateral for that particular Loans.

Loan Against Property-

Loan against property is a loan when lender provides loan against that particular property.
In this loan that property consider as security deposit of that loan amount.

Naina Kapoor (Financial Consultant) (277 Points)
Replied 26 June 2020

I think Loan Against Property is the best as its features are way better than Home Loan so here are the features of it:

1. Low Interest Rates

2. High Sum Value

3. Flexible Tenure

4. Easy Balance Transfer

5. Flexi Dropline Feature

Loan against property offer high-value loan amounts without any end-user restrictions. Loan against property gives the privilege to fulfill their specific needs along with flexible loan tenure and attractive interest rates.

JukkaNi (Teacher) (28 Points)
Replied 09 March 2021

Personally, I think that taking out loans is generally not a particularly good idea. It is better to set aside money from other sources than to be proper.