Home Loan and Mortgage Loan: Key Differences
Home Loan and Mortgage Loan are two commonly used financial products in India that often create confusion among borrowers. Although Home Loan and Mortgage Loan may sound similar, they serve different purposes and come with distinct features.
What is a Home Loan?
In a home loan, the borrower receives funds from the bank to either purchase an existing home or a new one or construct a new home. You can get a home loan to buy a house or renovate an existing one too. This type of loan is typically secured, meaning the lender will hold the home being used as collateral for the loan as security. When the borrower pays back the full loan in equal monthly installments, it is released. The lender has the right to sell the home in order to recoup any outstanding debts in the event that the borrower becomes insolvent and is unable to repay the loan.
The percentage of the total amount that can be financed with a home loan, or loan-to-value (LTV) ratio, is greater and ranges from 85 to 90%. One of the main distinctions between mortgage loans and home loans is this. A house loan also offers the choice between a fixed interest rate and a fluctuating interest rate. In India, a home loan can have a maximum term of 30 years. Home loans also have a processing fee, which typically ranges from 0.5 to 1% of the loan amount.
What is a Mortgage Loan?
Mortgage loans, in contrast to housing loans, are available for any purpose the borrower chooses. It does, however, have one thing in common with home loans—the lender seizes control of the borrower’s property until the loan is fully repaid.
Mortgage LTV ratios range from 60 to 70%. This indicates that only 60–70% of the collateral’s current market value will be available to the borrower in the form of a loan. These loans have processing fees that are normally 1.5% of the loan amount, and there is also a top-up facility available. The borrower can easily obtain additional funding on the current loan using this facility. The term of mortgage loans can last up to 15 years. The interest rates given on mortgage loans are a little higher (between 1 and 4% more) than those for home loans.
Difference Between Home Loan and Mortgage Loan
Understanding the difference between Home loan and Mortage loan helps borrowers choose the right financing option based on their needs.
| Parameters | Home Loan | Mortgage Loan |
| Definition | Considered for the purpose of buying a residential property or a piece of land | There are no restrictions as such on this kind of loan, and the loan amount can be used for any purpose by the borrower. |
| Loan-to-value (LTV) Ratio | Usually 85-90% of the current market price of the property | 60-70% of the current market price of the property |
| Rate of Interest | Lower as compared to mortgage loans | 1-3% higher as compared to home loans |
| Processing Fee | 0.8-1.2% of the total loan amount | 1.5% of the total loan amount |
| The Tenure of the Loan | Up to 30 years | Up to 15 years |
| Tax Benefits | Offered under Section 80C, Section 24, Section 80EE, Section 80EEA | No tax benefits |
The choice between Home loan and Mortage loan depends on your financial goals, repayment capacity, and purpose of borrowing
Source: Housing.com
Conclusion
Both Home Loan and Mortgage Loan offer financial assistance but differ in purpose, tenure, and benefits. Before choosing between Home Loan and Mortgage Loan, evaluate your financial requirements carefully and seek professional advice.
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