A home loan funds buying, building or improving a home, and the home is the security. A loan against property (LAP) mortgages a property you already own to raise money for almost any purpose. Home loans usually cost less, run longer and can carry tax benefits; LAP is more flexible but dearer.
Side by side
Factor
Home loan
Loan against property
Purpose
Buying, building or improving a home
Any lawful purpose, including business
Security
The home being bought
A property already owned
Interest rate
Usually lower
Usually higher
Tenure
Often up to 30 years
Usually shorter
Loan to value
Capped by RBI for housing loans
Set by the lender, usually lower
Tax benefits
Possible, depending on the tax regime
Generally not, unless used to buy or build a home
Prepayment charges
None on floating rate for individuals
None on floating rate for individuals for non-business use
When Home loan matters
Use a home loan to buy or build the home you will own; it is the cheaper route.
When Loan against property matters
Use LAP when you need funds for something other than buying a home and own a property with clear title.
In more detail
Defaulting on a LAP can cost you the property you mortgaged, which may be your own home. Borrow only what you can repay.
Tax treatment depends on how the money is used and on the tax regime you choose. Check with a chartered accountant.