Aug 29, 2023

Mortgage Loan Vs Home Loan: Decoding The Difference

by Godrej Properties Limited

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Mortgage loans and home loans are mostly used interchangeably, leading to confusion among individuals or borrowers. However, they are distinct financial products with unique features. Let's understand the difference between mortgage loans and home loans, allowing borrowers to make informed decisions.
 

Mortgage Loan Vs Home Loan

A mortgage is a contractual agreement between a lender and you that gives the lender the right to repossess your property if you cannot repay the borrowed amount plus interest. In contrast, a home loan provides funds from a bank to purchase or construct a property. In-home loans, the property serves as collateral. The bank has the right to sell the property to recover its money if the borrower fails to repay the loan. 
 

Here are the common differences in home loans Vs. mortgage loan:
 

The Use

A home loan is for financing property acquisition or construction. A mortgage loan serves various financial needs, such as education, weddings, and medical emergencies. 
 

Loan-to-Value Ratio (LTV)

Home loans cover 80-90% of the property's current market value, while mortgage loans usually cover only 75% of the property's value. 
 

Interest Rate

Home loans generally have lower interest rates, starting from 6.5%. On the other hand, mortgage loans start from 7.5%, making home loans a more cost-effective financing option.
 

Processing Fees

Home loans have relatively lower processing fees, ranging from 0.2-1% of the loan amount. In contrast, mortgage loans attract higher processing fees, usually around 1.5% of the loan amount.
 

Loan Tenure

Home loans offer longer repayment tenures, extending up to 30 years, providing borrowers with lower EMIs but higher overall interest payments. Mortgage loans typically have shorter payback periods, limited to 15 years.
 

Some Real-Life Examples

Arnab's Home Loan Application

Arnab and his wife are salaried professionals planning to buy a flat. They applied for a home loan mortgage. The bank evaluated their income, creditworthiness, and ability to repay the loan, ensuring that the funds were utilized for property-related purposes only.
 

Harshal's Mortgage Loan Application

Harshal owns a general store and seeks to expand his business by refurbishing a property. He applied for a mortgage home loan using his property as collateral. Unlike Arnab's home loan, Harshal's mortgage loan has no end-use restrictions, allowing him to use the funds he deems fit.
 

Conclusion: Understanding the Differences

While both home and mortgage loans are based on real estate, they serve different purposes and offer distinct features. Understanding the difference between home loans and mortgage loans empowers borrowers to make the right financing decision. A home loan offers a long payback tenure, sometimes up to 30 years. Mortgage loans typically have a payback period of up to 15 years. 

 

FAQs

Q: What is the difference between home and mortgage loans?

A: The primary difference between home loans vs mortgage loans lies in their use and loan-to-value ratio. 
 

Q: Which loan typically has a longer tenure?

A: Home loans offer longer repayment tenures, up to 30 years, while mortgage loans offer a payback period of up to 15 years.
 

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