Can a Loan Against Property be Converted into a Home Loan?
To answer your question right off the bat: NO! A home loan is very different from a loan against property (LAP). The interest rate on a home loan is lesser than the interest rate on a mortgage loan or a LAP loan, for starters. The difference between both is that with a housing loan, the property in question does not belong to the borrower at the loan application time. In contrast, with a loan against property, an existing asset (house/land) is mortgaged as security.
Other factors based on which these two loans vary as follows:
- Purpose of the loan
- Interest rate
- Tax exemption
- Loan tenure
- Processing time and fees
- Prepayment fee
- Nature of the property
What is a Home Loan?
A home loan is a type of loan that offers funds to borrowers to finance a home purchase. The loan can be available if you want to purchase a new residential property, construct a residential property, or purchase land to build a home. The interest rate on a home loan is lesser than rates applicable on a loan against property, and with Bajaj Housing Finance, a home loan applicant can avail up to Rs.3.5 crore to make their dream purchase.
Home Loan Interest Rates
Individuals applying for a home loan can avail of interest rates based on the property value and monthly income. If you have a high income, a good CIBIL score, and work in a reputed organization or an MNC, your chances of getting a low rate on a home loan is higher. The interest rate is fixed, and the principal remains constant for the whole tenure. On the other hand, the principal and interest payments on a home loan with floating rates vary. With Bajaj Housing Finance, you can avail of a home loan amount of up to Rs. 3.5 crore at attractive interest rates to finance the purchase of your dream home. The loan tenure is quite flexible, and the repayment tenure can be as long as 360 months.
Purpose of a Home Loan
- Purchasing a home
- Land purchase
- Buying a plot
- Property construction
- Finance home improvement expenses
- Property conversion
- Extension of home
What is Loan Against Property?
A loan against property is available to borrowers who own a property that can be pledged as collateral against the loan. It is one of the easiest ways to get a large loan amount in a short period. When individuals avail of a LAP loan, there are no restrictions on using the loan amount. The funds can be used to consolidate debt, finance higher education, invest in a business, or even use it for emergencies. A loan against property can also be used to purchase a new home or property.
Loan Against Property Interest Rate
A loan against property (LAP) can have a fixed or floating interest rate. Like a housing loan, the borrower can pick an interest rate system that is advantageous to them. However, the loan against property interest rates is comparatively higher than those of home loans. With Bajaj Housing Finance, you can avail of a loan against property (LAP) of up to Rs. 1 crore at an affordable rate of interest as well as flexible repayment tenures of up to 360 months.
Converting Loan Against Property into a Home Loan
It is impossible to convert a LAP loan into a home loan as the nature of both are different, and so are their terms and conditions. For example, if a borrower cannot bear the burden of a mortgage loan, then s/he can opt for alternatives like a balance transfer facility. This facility transfers the existing loan balance to another desired bank that offers better interest rates or a longer tenure. The loan balance transfer facility allows you to transfer the outstanding loan amount from one financial institution to another.
Certain banks and financial institutions have a minimum balance requirement before initiating the loan balance transfer. With a balance transfer facility, you can convert a LAP loan to a home loan. To avail of this facility, a borrower must have a good credit score and a clear repayment history of previous loans. Also, make sure that you go through the terms and conditions of loan conversion before availing of either of these credit facilities.