What are Home Loans and Loan against Property?
Sep 26, 2018 Home Loan
When it comes to funding for buying a new property or for personal use, people often get confused between the home loans and loan against property.
We discuss both in detail with their tax implication and requirements to take either loan:
We discuss both in detail with their tax implication and requirements to take either loan:
Home loan
Home loans are given by the loan lenders to buy a house that is under construction or is ready to move in properties. It can be taken to purchase commercial as well as residential properties. In home loans, the property is pledged to the lender until the entire loan amount is paid with interest.
Tax benefits
The advantage of home loan is that the borrower can claim twin tax under the IT laws. Under Section 80C deduction of Rs 1.5 lacs is available along with provident fund, contribution to employee provident fund, school fees etc. on the principal amount. Under Section 24(b), the borrower can claim the tax benefit for the interest paid.
Requirements and the rate of interest
According to the regulations implemented by Reserve Bank of India, the loan lenders can give the borrower a loan up to 80 percent of the value of the property. The rest 20 percent the buyer will have pay from their pocket. This is to safeguard the lenders against any fraud.
The rate of interest is generally between 9 percent and 12 percent, and the duration can go up to 30 years.
The rate of interest is generally between 9 percent and 12 percent, and the duration can go up to 30 years.
Loan against property
Loan against property can be used to raise funds for personal use or for buying the property that is not eligible for a home loan due to some issue in the title of the property or any other reason. The loan against property can be obtained by putting any immovable property as security with the lender.
A line of credit can be setup alternatively in the form of an overdraft facility with a set limit, based on the value of the property and the repayment capacity of the borrower.
A line of credit can be setup alternatively in the form of an overdraft facility with a set limit, based on the value of the property and the repayment capacity of the borrower.
Tax benefit
The tax benefit for this depends directly on the ultimate use of the loan and the amount borrowed. If the loan against property is taken to buy any other immovable property, then the borrower can claim a deduction on the interest under Section 24(b). If the loan is taken for personal use, like for marriage purpose of funding the education of the child, then no tax benefit can be claimed. If the loan is taken for business, the interest paid and the related cost like processing fee and documentation charges can be claimed as business expenditure under Section 37(1).
The rate of interest and requirements
The rate of interest for the loan against property is generally higher than the home loans but are lower than personal loans. The rate may vary from 11 percent to 14 percent depending on the lender and the profile of borrower. Hence, it is recommended that if you are buying a house, taking a home loan is a better option than taking a loan against property.
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