Home loan vs loan against property: Which one should you choose in 2025?

Home loans and loans against property (LAP) are two widely-used methods of taking out loans that often confuse more than they do help those borrowers who want to borrow funds that relate to real estate so that they are able to fulfil their financial requirements.

They are secured loans that fall under the category of collateralised loans, but they are wholly different in all features, benefits, and purpose. To help you choose what option may be best for you, let's look at a comparison side-by-side.

What is a home loan?

A home loan is a secured loan for buying, constructing, or renovating residential properties. The property to be purchased acts as the collateral until the loan is fully repaid.

Key features:

• Long terms to maturity, typically up to 30 years
• Lower interest rates than LAP
• Repayment through EMI
• Tax benefits, according to Sections 80C & 24(b) of the Income Tax Act

What is a loan against property?

A loan against property is a multipurpose secured loan created by mortgaging one's own home or business. It is commonly used for both personal as well as business purposes (e.g., a wedding, an unplanned medical bill, business expansion).

Key features:

• Any use accepted (no restrictions as applied to home loans).
• Interest rates are generally higher than home loans.
• Term: 15-20 years
• No tax benefits for personal use.

Home loan vs. loan against property

1. Purpose of loan

• A home loan is strictly for the purchase of a house, for building, or for renovating a home.
• LAP is a multipurpose loan that can be used for personal and professional financing needs, such as building a business, medical emergencies, or funding an education.

2. Collateral

• When taking on a home loan, the buyer ‘mortgages’ the property with the lender until the borrower is finished paying the home loan back.
• With LAP the borrower must mortgage an existing self-owned property, whether residential or commercial to get the financing.

3. Interest rates

• Because there is less risk and government funding available, home loans are usually lower risk with interest rates from 8% to 10% per year.
• LAP is a little higher around 9% to 12% per year because of the potentially wider end-use and risk involved.

4. Loan amount

• Depending on the lender and property type, a house loan allows the applicant to borrow up to 75% to 90% of the market value of the property.
• For LAP, which is based on the liquidity of an existing asset and the current worth, the loan amount is lower and usually between 60% and 75% of the property's market value.

5. Repayment

• Home loans generally provide more flexibility when it comes to managing EMIs because the repayment terms for home loans can be as long as 30 years.
• LAP on the other hand will usually offer shorter tenures of up to 15 to 20 years based on the type of property and borrower's profile.

Eligibility & documentation

As required on both loans, standard documentation will include:

• Proof of identity and proof of address
• Proof of income (either pay stubs or IT returns)
• Property documentation

But LAP has fewer restrictions because it is not just for purchasing real estate, so both business owners and self-employed people rely on it for business growth demos.

In conclusion, the answer depends on why you are borrowing. Each loan will have particular advantages, and which option is best for you will depend on your financial purposes, repayment abilities, and tax preparation.

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