Difference Between a Home Renovation Loan and a Loan Against Property

home renovation loan vs loan against property

To those that qualify, banks offer a range of loans. On the other hand, because they are unfamiliar with the financial language, borrowers can become perplexed. Home remodelling and a home loan against property are two instances of this ambiguity. To some, it might sound familiar. Despite this, they are distinct and have different functions.

Therefore, we’ll attempt to identify the key distinctions between these two seemingly equivalent forms of loans in this essay.

What are a Home Renovation Loan and a Loan Against Property?

Home renovation loan

Over time, routine maintenance will be needed for your home. This could entail performing repairs, equipping, painting, and other tasks.

To maintain the beauty and appeal of your home, renovations are a costly but important endeavour. The rising cost of labour and materials, as well as any new appliances added or other similar requirements, are the main causes of the rising cost of maintenance. However, you can apply for a home renovation loan if you don’t want to use any of your funds.

The majority of borrowers find the home renovation loan interest rates to be appealing, and the flexible repayment plans make it easier for them to make the necessary improvements to their homes.

Loan against property

A home loan against property is a versatile loan that borrowers can acquire using real estate as security. In this scenario, a borrower may pledge personally owned property in exchange for a sum of money equivalent to a specific percentage of the property’s market worth.

The loan may be backed by finished, leased, or commercial, residential, or industrial real estate. The loan’s terms are negotiable and dependent on how the property will be used.

Difference Between Home Renovation Loan And Loan Against Property

  • Interest rate

The property loan interest rate is typically higher than loans for home improvements. Additionally, the amount of money levied on the property is frequently higher than the sum needed for home renovations.

  • Purpose

The borrower’s use of home renovation loans is rather constrained. The money received can only be used for maintenance, including painting, retrofit remodelling, and other tasks. On the other hand, a loan against property can be applied for a range of things. A borrower might decide to utilise the money, for instance, to finance the education or marriage of a kid or to grow or launch a new business. These loans are secured ones that employ collateralized personal property.

  • Loan to value

Another important distinction between the two categories is the loan-to-value ratio. Banks often lend 60–70% of the value of the collateral when making loans against property.

  • Tax Benefit

Taking out a loan against property is not tax deductible. However, a candidate is qualified for a tax credit for home remodelling loans under Section 24 of the IT Act, 1961.

  • Loan Tenure

The length of the loan is another difference between the two types of loans. For a loan against property, the maximum loan term is 15 years; for loans for home renovations, the maximum loan term is 20 years. However, if improvements take longer than a year to complete, the loan cannot be extended.

As a result, there is a huge difference between the two forms of loans. Study the information presented above in order to understand how home remodelling loans and a home loan against property differ from one another. This will enable you to compare various loan options offered by financial organisations and do in-depth research to get the best deal for your unique requirements.


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