What Is the Difference Between a Home Renovation Loan and a Loan Against Property?


Banks make a variety of loans available to eligible applicants. On the other hand, Borrowers sometimes get puzzled due to a lack of knowledge about financial language. Home renovation and home loans against property are two examples of such confusion. It may sound familiar to some. They are, nevertheless, distinct and serve different purposes.

So, in this post, we’ll try to figure out the primary differences between these two types of loans that sound identical.

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

Home Renovation Loan

Your home will require routine maintenance over time. This could involve things like repairing, outfitting, painting, and more.

Home renovation is an expensive yet necessary endeavour to keep your home’s charm and appeal. The rising cost of maintenance is due to skyrocketing costs of manpower and materials and any new appliances added or other similar requirements. However, if you do not want to dip into your savings, you can apply for a home renovation loan.

For most borrowers, the home renovation loan interest rates are attractive, with flexible repayment schedules helping them carry out necessary upgrades to their homes.

Loan Against Property

A home loan against property is a multi-purpose loan that can be obtained by individuals using real estate as collateral. In this case, a borrower might pledge self-owned property for a quantity of money equal to a particular proportion of the market value of his property.

The loan can be secured on finished, residential, industrial, or leased real estate. The loan terms are flexible and will be determined by the purpose of property use.

Difference Between Home Renovation Loan And Loan Against Property

  • Interest rates: The rates charged on loans against a property usually is higher than home renovation loan interest rates. Moreover, the amount of money sanctioned against property is often greater than the funds required for home refurbishing.
  • Purpose: The home improvement loans have limited utility for the applicant. The cash obtained can only be used for repairs, refit remodels, and painting, among other things. Loans against property, on the other hand, can be used for a variety of purposes. For example, a borrower can use the funds to expand or start a new business, child education/marriage, or other purposes. In addition, these are secured loans in which personal property is used as security.
  • Loan To Value: The loan to value ratio is another significant distinction between the two categories. Banks typically give 60-70 per cent of the property’s worth as loan amount for loans against property.
  • Tax Benefit: There are no tax incentives for obtaining a loan against property. However, under Section 24 of the IT Act, 1961, an applicant is eligible for a tax benefit for home renovation loans.
  • Loan Tenure: Another distinction between the two types of loans is the loan tenure. The maximum loan tenure for a loan against a property is 15 years, while the maximum loan payback period for a home renovation loan is 20 years. However, the loan is only extended for renovations if the work is completed within a year.
  • Loan Repayment Option: Banks typically provide various repayment choices for home improvement loans. This could include a step-up repayment schedule, part-fixed and part-floating EMIs, etc. On the other hand, with a loan against property, a borrower can select between fixed and floating rates.

As a result, the distinction between the two types of loans is enormous. Therefore, you must study the preceding facts and comprehend the contrast between home renovation loans and home loans against property. This will allow you to research and evaluate multiple loan choices provided by financial institutions to find the best deal for your specific needs.

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