Can a LAP (Loan Against property) converted in to Home Loan
Home loan in itself is a LAP (loan against property) in nature, the only difference is that the property in question doesn’t actually belong to the borrower at the time of loan application. Before going deep into the possibility of converting loan against property as home loan let’s understand both loan types.
What is Loan Against Property?
Loan against property can be availed by you when you own a property which can be provided by you as security against the loan. The restriction on the use of loan amount procured against property is not much. You can freely use the loan for education, marriage expense, travel or even invest in the business. You can also use the amount for the purchase of another property as well.
You can get a loan against property for the purchase of other residential or commercial property as well as for the purchase of land. Under loan against property, you can get a maximum of 75% of the property’s value which is estimated by the banker’s value officer. The maximum tenure for which loan against property is provided to be 15 years.
What is Home Loan?
A home loan is taken to buy a house. You avail this loan to purchase a house. Home loan as said before is availed to purchase a house so clearly, there is a restriction on how the loan taken should be used. A home loan is only advanced when the individual wants to purchase a residential property. The maximum loan amount, in this case, can be up to 90% of the property’s value. Also, the maximum tenure for a home loan can be up to 30 years.
Can Loan against property be converted into Home Loan?
Loan against property is not as economical as home loan for a variety of reasons like the rate of interest on a home loan is lower than the rate of interest on loan against property. Other reasons are:
• Loan against property is usually taken in urgent financial circumstances, thus it is easily assumed that the borrower is ready to pay a high interest rate.
• In case of LAP, the bank has higher risk factor as the loan can be used for any purpose whereas in case of the home loan the borrower is restricted to using the loan only for the purchase of a property.
• The home loan is encouraged by the government as well through its “Housing For All Policy” which provides subsidies as well. No such policy for the loan against property.
In addition, a home loan has a longer repayment tenure than loan against property, which makes its EMIs more affordable. A home loan gives the borrower certain tax benefits as well but no such benefits are there in case of loan against property.
All being said, it is not possible to convert your loan against property into the home loan because the purpose for which the loan has availed the terms and conditions, as well as the nature of the loan, is very different. It might seem that both loans are similar as both require to pledge a property but apart from this similarity, there are no other things similar between them. The very basis of both loans is very different.
However, if you are facing difficulties in affording the EMI of your existing loan against the property than you can consider the option of balance transfer as well.