What is the Difference Between Home Loan and Mortgage Loan
October 21, 2024
We have different types of Home Loans designed to serve different purposes. For example, a home loan is specifically meant for purchase of a new or under construction house or property, while a plot or land loan offers financing for the purchase of a land. That said, aspiring homebuyers often get confused between mortgage loans and Home Loans. Though both the loans are secured loans, there’s a distinct difference between the two.
In this blog, we have decoded the difference between a home loan and mortgage loan so that you can make an informed decision.
Understanding Home Loans
A home loan is a secured loan that offers financing for the purchase of a house or property. You can use the loan amount to buy a new house or an under-construction property. Banks usually sanction loans up to 80% - 85% of the cost of the property, based on your loan eligibility. The tenure is usually up to 20 years. Once you avail a home loan, you are required to repay the loan amount in the form of EMIs (Equated Monthly Instalments). The house acts as a collateral till the entire loan amount is repaid.
Point to note: You can use a home loan only to buy a house and not for anything else.
Understanding Mortgage Loans
Mortgage loans or Loan Against Property is a financing option you can avail against your existing property to cater to various financial requirements, like business expansion, funding for education, etc. It’s a secured loan like personal loan. However, there are no end-use restrictions, meaning you can use the loan amount to meet any financial requirement. The tenure is generally shorter than home loans, often less than 10 years.
Key Differences Between Home Loan vs Mortgage Loan
Now that we've covered the basics of home loans and mortgage loans, let's delve into their key differences.
| Aspect | Home Loan | Mortgage Loan |
| Purpose | Loan can be used only for purchase of a house or property | Loan can be used to cover any financial requirement |
| Security | The house/property you’re planning to buy acts as a collateral | Your existing house acts as a collateral |
| Interest Rates | Lower than personal loans | Lower than personal loans but more than home loans |
| Loan Amount | Depends on factors like income, credit score, and property value | Depends on property value |
| Loan Tenure | Flexible tenure options, typically up to 20 years | Tenure is usually less than 15 years |
| Repayment Tenure | No prepayment fees for floating rate home loans | May come with a prepayment and/or part payment fees |
| Loan-to-Value Ratio | Typically, up to 85% of the property value | Typically, up to 60% of the property value |
How to Choose Between Home Loan and Mortgage Loan
When it comes to choosing between a mortgage vs home loan, the only parameter you need to consider is your purpose of taking a loan. If you’re planning to buy a new house or property, applying for a home loan would be a better option. Home loans come with lower interest rates and extended repayment tenures.
However, if you have an existing property and want to take a loan against it to meet any financial requirement, a mortgage loan or loan against property would be a better option. There are no end-use restrictions for mortgage loans.
Final Thoughts
Consider the purpose before applying for a loan. While a home loan is specifically designed to purchase a house or property, a loan against property or mortgage loan offers financing that can be used to meet any financial requirement.
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