Are Home Loan And Mortgage Loan Different?

Loans are the lifeline of the Indian economy. It helps fuel the dreams and aspirations of a developing India. In India, there are exclusive loans for almost all kinds of requirements. However, if the volume is an indication, home loans, and mortgage loans are the two most popular types of loans in India.

This article points out the differences between home loans and mortgage loan and helps you to decide the right loan for you.

What is a Home Loan?

When a borrower borrows money from a lender for the acquisition, construction, up-gradation, or renovation of a residential property, it is a home loan. In this case, the property or home acts as the collateral. If the borrower is unable to pay EMI on time, the lender can liquidate the asset to get its money back.

What is a Mortgage Loan?

mortgage loan is a loan against property. A borrower may mortgage his/her constructed or freehold property to apply for a loan. In this case, although the ownership of the property remains with the borrower, it is the lender who remains as the real owner of the property till the borrower repays the loan.

What are the Limitations on Using the Loan Amount?

You may use the home loan amount only for construction, purchase, or renovation of a house. However, the biggest benefit of a loan against property is that you may use it for any purpose. Borrowers may use the mortgage loan funds to buy a house, buy a car, paying for medical emergencies, or any other purpose. There is no limitation whatsoever on the usage of mortgage loan funds.

Home Loan and Mortgage Loan – Difference in Interest Rates

Although both home loans and mortgage loans are secured, the interest rate on a home loan is usually lower than on loan against property.

Interest rates are of two types – fixed and floating.

At present, the floating rate of interest on a home loan is between 8.95% and 9.45% for salaried and self-employed professionals. loan against property interest rate is around 10.50% for commercial property, 10.25% for residential property, and 11.25% for a residential or commercial plot.

Home Loan and Mortgage Loan – Difference in Loan Amount

The loan amount in a home loan depends on the profile and income of the borrower, CIBIL score, and valuation of the property. The main emphasis is on the repayment capability of the borrower.

The loan amount in a mortgage loan depends mainly on the value of the property. Although the profile and income of the borrower are also important, they are often secondary.

Home Loan and Mortgage Loan – Difference in Tax Treatment

The interest on a home loan is eligible for tax benefits under Section 24 and the principal under Section 80C. In case of a loan against property, only the interest gets tax benefits.

Home Loan and Mortgage Loan – Difference in the Value of Property

A home loan provides funds of up to 90% of the property’s market value. However, the amount is around 60% in case of a loan against property.

Conclusion

While both home and mortgage loans are equally popular among borrowers, it is ultimately the purpose and requirement that matters during the final selection.