What Is a Home Equity Loan?

If you already own a house and need a large amount of money, a home equity loan can help you unlock the value of your property. In simple words, it is a loan taken against the portion of your home that you fully own.

In India, this is commonly known as Loan Against Property or LAP. Many homeowners use it for business expansion, education, medical emergencies, or debt consolidation. At Saarathi.ai, we have observed that borrowers often confuse home equity loans with home loans. They are different. A home loan helps you buy a house, while a home equity loan helps you borrow against a house you already own.

Let us understand this clearly and simply.

What Is a Home Equity Loan?

A home equity loan is a secured loan where you pledge your residential or commercial property as collateral and borrow money based on its value.

Equity means the portion of the property that belongs to you. If your house is worth Rs 1 crore and your outstanding home loan is Rs 30 lakh, your equity is Rs 70 lakh.

Banks and NBFCs usually lend 50 percent to 70 percent of the property’s market value, depending on eligibility and repayment capacity.

In India, this product is widely offered as Loan Against Property by banks and NBFCs regulated by the Reserve Bank of India.

How Does a Home Equity Loan Work?

Here is how it works in simple steps:

First, the lender evaluates your property.
Second, they check your income and repayment ability.
Third, they determine the eligible loan amount.
Fourth, once approved, the amount is disbursed to your bank account.

The property remains in your name, but the lender keeps legal rights until you repay the loan fully.

You can compare Loan Against Property options easily on Saarathi.ai to see which lender offers the best rate for your profile.

Who Can Apply for a Home Equity Loan?

Home equity loans are suitable for:

• Salaried professionals

• Self-employed individuals

• Business owners

• Property owners with clear title

Basic eligibility usually includes:

• Age between 21 and 65 years

• Stable income source

• Clear property ownership

• Acceptable credit score

At Saarathi.ai, we have seen that applicants with a credit score above 700 usually get better interest rates.

If you are unsure about your eligibility, you can ask quick questions via Saarathi AI and get instant clarity before applying.

Home Equity Loan Interest Rates in India 2026

Interest rates for Loan Against Property typically range between 9 percent and 14 percent per annum, depending on:

• Credit score

• Income stability

• Property location

• Loan tenure

• Lender policies

Since it is a secured loan, interest rates are usually lower than personal loans but slightly higher than home loans.

Comparing multiple lenders is important because even a 1 percent lower interest rate can save lakhs over time. You can compare personalized offers on Saarathi.ai without affecting your credit score.

Loan Amount and Tenure

The loan amount depends on:

• Property market value

• Income and repayment capacity

• Existing loan obligations

Typically, lenders offer:

• Up to 50 to 70 percent of property value

• Tenure ranging from 5 years to 20 years

Longer tenure means lower EMI but higher total interest. Choose wisely based on your financial goals.

What Can You Use a Home Equity Loan For?

One big advantage of a home equity loan is flexibility. You can use it for:

• Business expansion

• Children’s higher education

• Medical emergencies

• Wedding expenses

• Debt consolidation

• Renovation

However, lenders may restrict use for speculative or illegal purposes.

At Saarathi.ai, we always recommend borrowing only for productive or necessary reasons because your home is involved.

Home Equity Loan vs Home Loan

A home loan is taken to purchase or construct a property.
A home equity loan is taken against a property you already own.

Home loans usually have lower interest rates because they are purpose-specific. Loan Against Property offers more flexibility but may have slightly higher rates.

If you already have a home loan and have repaid a significant portion, you may be eligible for a top-up loan. Saarathi Recommendation Engine can help identify whether a top-up or fresh Loan Against Property is better for you.

Advantages of a Home Equity Loan

Lower interest compared to unsecured loans.
Higher loan amounts possible.
Longer repayment tenure.
Flexible usage of funds.
Continued ownership of property.

For business owners, it can be a cost-effective way to raise working capital compared to business loans in some cases.

Risks You Should Know

Since your property is pledged, defaulting can lead to serious consequences.

If you fail to repay consistently, the lender may initiate legal recovery proceedings. This can affect both your property and credit score.

This is why:

Borrow within your repayment capacity.
Maintain emergency savings.
Avoid over-leveraging your property.

At Saarathi.ai, we guide borrowers transparently about risks before they apply.

Documents Required

Most lenders ask for:

Identity proof
Address proof
Income documents
Bank statements
Property documents
Existing loan details if any

Digital lending platforms now allow partial paperless processing. Through Saarathi.ai, you can upload documents online and track your application in Saarathi Bazaar dashboard.

Tax Benefits on Home Equity Loan

Tax benefits depend on how you use the funds.

If the loan is used for home renovation or construction, certain deductions may apply under Income Tax provisions. However, if used for personal expenses, tax benefits may not be available.

Always consult a tax advisor for clarity.

Is a Home Equity Loan Right for You?

A home equity loan is suitable if:

You need a large amount at lower interest.
You have stable income.
You have clear repayment visibility.

It may not be suitable if:

Your income is unstable.
You already have high EMIs.
You are unsure about long-term repayment.

Before deciding, compare offers across banks and NBFCs. On Saarathi.ai, you can explore Loan Against Property options, check eligibility instantly, and receive AI-driven recommendations tailored to your profile.

FAQs

1. Is home equity loan the same as Loan Against Property?

Yes. In India, home equity loan is commonly called Loan Against Property.

2. How much loan can I get against my property?

Usually 50 percent to 70 percent of the market value, depending on income and lender policy.

3. Does taking a home equity loan affect ownership?

No. You remain the owner, but the lender has legal rights until full repayment.

4. What happens if I default?

The lender may initiate recovery proceedings, which could include legal action against the property.

5. Can I prepay a home equity loan?

Yes, most lenders allow prepayment. Charges may apply depending on fixed or floating rate structure.

Conclusion

A home equity loan is a powerful financial tool if used wisely. It allows you to unlock your property’s value without selling it.

Before applying, remember:

Understand your equity clearly.
Check your repayment capacity.
Compare interest rates across lenders.
Read all loan terms carefully.
Avoid borrowing beyond your need.

Instead of approaching one bank directly, discover personalized Loan Against Property offers on Saarathi.ai today. Compare multiple lenders, get AI-based recommendations, and complete your journey faster with full transparency.