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What is the difference between a home loan vs a loan against property?


In the realm of real estate and property financing, individuals often encounter the dilemma of choosing between a home loan and a loan against property (LAP) to fulfil their residential or financial needs. Home loans and LAP are two distinct avenues of financing, each tailored to address specific financial requisites. When it comes to home loans, there are many technical terms that confuse borrowers. Because the features and benefits of a home loan and a loan secured by property are so similar, most of the time, borrowers are confused between the two types of loans. These two phrases are frequently used synonymously. Another name for a loan secured by real estate is a "mortgage loan."

In this blog, we will learn about the distinguishing features of home loans and loans against property, elucidating their nuances, fundamental disparities, operational frameworks, and the crucial role they play in facilitating property-oriented financing.

Home Loan vs. Loan Against Property

A loan against property, as the name suggests, is a secured loan that allows individuals to utilise their residential or commercial property as collateral to secure financing from financial institutions. The property pledged as collateral can include a house, an apartment, a piece of land, or a commercial establishment. Traditionally referred to as a mortgage loan or property-backed loan, LAP enables borrowers to unlock the latent value of their immovable assets, enhancing their borrowing capacity. The loan amount sanctioned is typically a fraction of the market value of the property, and this secured nature of the loan often translates to lower interest rates compared to unsecured loans.

What do You mean by Loan Against Property?

Home Loan: A Synopsis

A home loan, also commonly referred to as a housing loan, is a specialised form of financial assistance extended by banks and financial institutions to individuals for purchasing a residential property. The primary objective of a home loan is to enable individuals to realise their dream of owning a house, either for self-occupation or as an investment. Home loans are specifically earmarked for the acquisition of residential properties, encompassing various housing options, including apartments, independent houses, and plots of land for constructing a house.

Loan Against Property: An Overview

Conversely, a loan against property, as the nomenclature suggests, is a collateral-backed loan that enables property owners to leverage the market value of their existing residential or commercial property to access substantial funding from financial institutions. This form of financing allows property owners to unlock the latent financial potential of their real estate assets by pledging their property as collateral, allowing for a diverse range of utilisation beyond mere property acquisition.

Delineating the Differences: Key Contrasts Between Home Loan and Loan Against Property

While both home loans and loans against property cater to property-centric financing, they diverge significantly in several key aspects and, as delineated below:

A home loan is a loan you take out to purchase a property that is already built, one that is being built, or a piece of land that you intend to develop into a house. Most often, banks or home finance companies offer secured loans like this. The buyer must thus make a down payment. The interest rate that the lender charges on the loan is either fixed or variable. The buyer must thus pay back the loan through monthly instalments. The borrower increases their equity in the property with each EMI payment. In the end, this results in total ownership after the loan is closed with all EMIs paid. The lender may sell it at auction to recoup losses if the borrower defaults on EMIs.

A loan secured by real estate is a mortgage loan. Under this, a borrower may pledge any current, privately held property for a payment equal to a predetermined percentage of the property's market value. Until he pays back the loan, he must turn over the property documents to the lender. Thus, the loan must be repaid in equal monthly instalments, much like a home loan. The principal loan amount and interest rate make up each EMI. The lender may sell the property that has been pledged as collateral to recoup his investment if the borrower defaults on the loan.

Purpose of Financing

Home Loan:

Home loan helps people to build or purchase a residential property, enabling them to realize their dream of becoming homeowners.

Loan Against Property:

On the flip side, a loan against property is aimed at helping property owners to capitalize on the market value of their current assets to secure significant funding for various financial requirements, some of which may or may not be directly connected to the purchase of real estate.

How do you apply and get paid for home loans?

Borrowers applying for home loans must provide thorough documentation about the property they are financing, as well as verified income proof, identification documents, and credit history statements. The loan is approved, and funds are disbursed in compliance with the specific construction milestones or property acquisition requirements after a successful verification process and diligent work.


The difference between home loans and loans secured by property stem from their unique terms, intended uses, level of collateralization, funding amount, and purpose-driven operational dynamics. Whole home loans focus on the specific goal of facilitating the purchase or construction of residential real estate and loans secured by real estate provide a comprehensive avenue for unlocking the potential for several estate assets to satisfy a range of distinct financial requirements. For those navigating the complex landscape of property-oriented finance, it is essential to comprehend the different features of these two financing mechanisms. This will enable them to make well-informed decisions that are in line with their unique financial goals.