How mortgage lending differs from lending against property – key points to remember

By Anshul IST (Released)

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Home Loan vs Home Loan: The two types of secured loans look very similar but differ a lot and many borrowers often use them interchangeably without realizing the main differences between the two. CNBC-TV18.com spoke to an expert to decode the differences and why they matter

A home loan and a property loan seem obviously similar, with many borrowers using the two terms interchangeably. But under secured advances, banks and financial institutions treat the two as different credit options.

Although aspects such as credit rating and repayment history are important in both cases, CNBC-TV18.com spoke to Jairam Sridharan, MD at Piramal Finance to find out how the two differ from each other.

Basic definition

A home loan or home loan, as the name suggests, is the type of loan consumers go to when they want to buy a home and need credit for the same. On the other hand, a property loan or a mortgage loan is a credit that a borrower gets from a lender on any unloaned property that he already owns, Sridharan said.

Objective

A home loan allows a borrower to use the credit to purchase an apartment under construction, pre-built, or land or land to build a house.

A home loan allows borrowers to raise a line of credit not only to purchase a property or house, but also for any other purpose.

“The house that one eventually buys with a home loan can be used for self-occupancy or can also be rented out depending on the needs of the borrower. an industrial or factory-related property, or even land in some case,” Sridharan said.

Instead of opting for a personal loan, a property loan can be a cheaper option for getting credit, Sridharan said.

“The LAP is often used by business owners to access capital to invest in their business for expansion and growth. Among salaried employees, if you own an apartment or other property, the LAP could be a cheaper way to finance weddings, higher education for children etc, instead of taking out a more expensive personal loan.”

Security/Warranty

When you are granted a home loan, the home that one intends to purchase through that loan is often used as collateral or collateral. In this case, there is a slight overlap between a home loan and a home loan, since both use the borrower’s property as collateral.

However, in the case of collateral for a loan against a property, one can only use the property they already own, not the property they intend to buy, Sridharan clarified.

Interest rate

At present, home loans or housing loans are available at a lower interest rate due to the government’s big push for affordable housing. Home loans or mortgages usually have a slightly higher interest rate than home loans.

Loan-to-value ratio

Borrowers can obtain a credit of up to 90% of the value of the property in the event of a mortgage. On the other hand, the maximum sanctioned loan amount in case of property loan is 60% of the value of the property, after the property appraisal by the lender.

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