Home Loan vs Mortgage Loan – What is the Difference?
Are you confused between a home loan and a mortgage loan? Want to know about home loans and mortgage loans? Want to see the difference between home loans and mortgage loans? So now, in this article, you will get to know everything about home loans and mortgage loans, and how they differ from each other. After reading the whole article, you can easily differentiate between a home loan and a mortgage loan, and understand which loan is suitable for you.
What Is a Home Loan?
A home loan is a type of secured loan used to finance real estate acquisition by using the property’s value as collateral. Finances of substantial worth can be obtained through home loans, including low-interest rates and extended repayment terms. Payments are made through monthly EMI instalments. The borrower regains full ownership of the property once all payments are made.
If the borrower cannot repay the loan, the lender has the right to foreclose and sell the collateral to recoup the debt.
Types of Home Loans
- Financing obtained to buy a home
- Loan secured against a property to make necessary repairs or alterations.
- Construction financing, which is a loan explicitly used to construct a dwelling
- Money borrowed to acquire land on which a dwelling is to be built
- Financing for constructing an addition to a house, such as a bedroom, bathroom, kitchen, garage, etc. A “joint home” refers to a loan taken out by two or more people, typically a married couple.
- A top-up home loan is a loan taken out in addition to the original home loan and can be used for anything.
Changing home providers and transferring the remaining loan balance enables borrowers to take advantage of competitive interest rates and more favourable repayment arrangements.
What Is a Mortgage Loan?
A mortgage loan is a type of secured loan in which the borrower pledges an immovable asset, such as a home or commercial property, to the lender as security for the loan. The lender holds the collateral until the loan is repaid.
This type of financing is expected since it enables you to borrow a sizable sum of money at an affordable mortgage loan interest rate and spread out your payments over a long time.
Types of Mortgage Loans
There are three main categories of mortgage loans to choose from.
- Home mortgages
- Finance for business properties
- Security-based loans
Home Loan Vs Mortgage Loan – 7 Ways in Which They Are Different
1. Quantum of Loan
The purchase of a home is often the most significant single financial commitment somebody makes. The purpose-built nature of a house loan means that you can borrow more money against the same amount of equity as you could with a mortgage loan.
2. Interest Rate
Mortgage loan rates are higher than home equity loan rates. The Government of India has reduced the margin criteria for home loans to make homeownership more accessible to its citizens.
3. Loan Tenure
Mortgage loans and home loans both feature lengthy repayment periods. Home loans have terms that might extend up to 30 years. Mortgage loan terms usually are 15 years, though some lenders extend them to 20 years. To better suit your budget, you can make prepayments on these loans in whole or part to shorten the term or the EMI.
4. Top-up Loans
You can take out a second mortgage loan on top of the first. Depending on your credit history, you may be approved for a considerably larger loan than you initially selected. If you are qualified for a loan of up to 70% of the property’s market value but have already taken out a loan for 50% of the deal, you can take out a top-up loan for the remaining amount. Top-up options are uncommon with home loans, but certain creditors may be willing to provide one depending on their evaluation of your financial situation and ability to make payments.
5. Tax Exemption
If you’re paying down your mortgage principal, you may be eligible for a tax break of up to Rs. 1.5 lakh under Section 80C. Also, the interest you pay on your mortgage is exempt from taxation under Section 24. General-purpose mortgage loans do not qualify for any tax benefits.
6. Prepayment Charges
No lender, regardless of the sort of loan you’ve taken, can charge you a prepayment penalty because of a variable interest rate. There may be a prepayment penalty if a fixed interest rate is used. This is unique and varies significantly among financial institutions.
7. Use
A mortgage loan can be used for many other purposes, like paying for college, a wedding, or unexpected medical bills, but a home loan can only be used to finance the purchase or building of a property.
Documents Required for Home Loans and Mortgage Loans
- Latest salary slips/ proof of income
- Bank account statements for the last 3 to 6 months
- PAN card
- Aadhar card
- Proof of address
- Documents about the property being purchased
- IT returns
In the case of home loans, you will also need to have complete paperwork of the property that is being pledged
Summing Up
Our goal is to provide you with tips you should keep in mind while taking home or mortgage loans, which you can prefer. Which one is suitable for you?
If you need money to buy or build a house, you should look into getting a home loan. Simply put, a mortgage loan can’t be utilised for anything else. Therefore, a home loan is viable if you need money for any other purpose.
Investment Reliable does not offer financial advice, but we provide unbiased information and evaluations on trading, investing, and finance. Users ought to always carry out their research. Also, visit Piramal Finance has more in-depth, educational-related articles.