Popular Housing Related Loan Products

  •   Wed, Sep 17 2025
  •   By Adarsh Shetty

September 17, 2025 

In the modern complex world, financial requirements arise anytime, out of nowhere, to everyone irrespective of their present financial status. Many a times, we only have a house as an asset. There may be a stable flow of income but no other huge sum of liquid cash at our disposal. Hence, in such a scenario, it becomes very difficult to cater to the requirement.

I thought today I should write about the various popular housing loan products usually offered by banks/NBFCs, which can help an individual get out of such tricky situations.

  1. Composite housing loan (land + construction): This is a loan granted to an individual by the bank for purchase of land and subsequent construction of a house. The construction can be done at a later date, whereas the purchase of land shall be financed immediately. The loan amount for construction of the house would be sanctioned in advance and can be availed as and when the construction begins.

  2. House/flat purchase loan: A house/flat purchase loan is given for the purchase of both ready-built flats/houses as well as under-construction flats. The amount is usually released directly to the builder/developer in instalments or in full, based on the progress of the construction of the building and the project overall.

  3. Loan for construction of house: A housing construction loan is provided to the customer for construction of a house on the plot he or she owns, irrespective of whether the plot is purchased, ancestral, gifted, or allotted by the government. Here, the bank is funding only for the construction of the house.

  4. Plot purchase or realty loan: This loan caters for purchase of residential plots only. A customer gets around 70% to 75% of the total cost of land on the basis of valuation. Some banks even fund up to 90% of the agreement amount provided the valuation criteria are met. Such loans can be converted to house construction loans later, if the customer wishes.

  5. Loan against property (LAP) or mortgage loan: This loan is given by the banks/NBFCs by pledging the house of the customer. LAP loans attract higher rates of interest than normal housing loans and are given for a maximum period of 10–15 years. The maximum funding amount usually shall not exceed 60%–65% of the house valuation. Some banks even fund vacant residential plots as well as agricultural properties. The end use of the funds is not usually asked by the banks, but they do not fund speculation purposes.

  6. Housing loan with an overdraft (O/D) facility: A customer can even avail a housing loan with overdraft facility. This is more helpful for business class or self-employed people who may have excess cash on a given day. He/She can deposit the excess funds directly to the loan account and interest is not levied for the deposited amount till the day the excess fund is withdrawn. Likewise, a customer can also withdraw funds from the loan account if there is an excess in funds beyond the sanctioned loan limit. Though this is sanctioned as a regular housing loan facility and you shall be regularly paying your EMIs, the additional overdraft facility allows a customer to save a huge amount of interest whenever he has excess liquid cash. Interest is levied based on the balance principal and is calculated on a daily or month-end basis depending on the bank’s policy.

  7. House renovation/improvement loan: House renovation or improvement loan is given whenever you are going for the renovation of your home. This loan can be availed for both civil and interior furnishing purposes. However, not all banks have this product. You may have to submit relevant quotations and other legal documents to the bank for availing this product.

  8. House extension loan: A house extension loan is given to a customer who is planning to extend the size and built-up space in his residential building. However, taking a license from the concerned authorities is a must for availing house extension loans.

  9. Top-up loan: A top-up loan is given on your existing housing loan, based on the valuation of your house and your financial eligibility. This amount can be used for any purpose and usually most banks shall not ask the end use of this amount. A top-up loan is like a personal loan, but the interest rate is much lower and it can be availed for the total tenure of your housing loan, thus making your EMIs lower. A basic requirement is a prevailing housing loan—if the housing loan is closed, then you cannot avail this loan.

  10. Reverse mortgage loan: If a person has only a house, is more than 60 years of age, and does not have any income to lead a life, then he is eligible for a reverse mortgage loan. There are many senior citizens who come across such a situation. In their prime, they would have built a good house, but as age progresses their income levels dip. Presently, due to age, sickness, or childless status, their family income may be nil. In such a scenario, the individual/couple can approach a nationalised bank and ask for this loan. The loan is disbursed by the bank every month or every quarter, except for a big instalment initially. The loan is disbursed for the entire loan term and after the demise of the owner/borrower, the bank takes charge of the asset and auctions it as per its policy. The disbursed loan amount along with interest shall be retained by the bank, and any additional funds shall be distributed among the borrower’s legal heirs after due legal process.

  11. Education loan: A built house can come in handy when you have to fund the education of your spouse, children, siblings, or yourself. If the loan requirement is more than Rs 7.5 lac, you can approach a bank. The loan is provided upon the mortgage of your house, both for domestic and foreign university education. Please note that for education loans, income does not become a criterion, whereas the valuation of your house is primarily important.

 
By Adarsh Shetty
Adarsh Shetty is a Financial and Insurance Consultant, Aadee Finsool, No 304, 3'rd Floor, City Plaza, Near PVS Circle, Mangaluru-575004. Cell:9663383567
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