Can You Convert a Loan Against Property into a Home Loan? Here’s What You Need to Know

As a borrower, you may think whether a Loan Against Property (LAP) can be converted into a Home Loan. While both products involve property as security, they are designed for entirely different purposes. A Home Loan is used to buy or build a house, whereas a Loan Against Property is a loan availed of against an already-owned property, often for housing or business needs. 

If you are considering this switch, here is what is possible and what is not. 

Understanding the Difference

Can LAP Be Converted to a Home Loan?

No, a LAP cannot be converted to a Home Loan. Here's why: 

• Different Loan Categories: Home Loans are asset acquisition loans. LAP is taken against existing owned properties. Their end-use, approval criteria, and processing are different. 
• Tax Law Restrictions: Deductions under Sections 80C and 24(b) apply only to Home Loans used for purchase or construction. Converting a loan taken for any other purpose will not qualify. 

What Are Your Options Instead?

If your objective has changed, for instance, you now want to purchase a new house, here’s what you can do: 

Close LAP and apply for a Home Loan

• Close your existing loan, do take the foreclosure charges, if any, into consideration 
• Apply afresh for a Home Loan for your intended property 
• You can be eligible for loan benefits and competitive rates, subject to eligibility 

Apply Separately for a Home Loan 

• If you are still servicing a LAP but meet income/credit criteria, you can apply for a new Home Loan 
• Lenders will evaluate your overall obligation before sanctioning a second loan 

While a Loan Against Property cannot be converted into a Home Loan, you still have pathways to finance your other goals. You can apply fresh for a Home Loan, ensuring full alignment with the intended property and associated tax benefits.