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Different types of loans are designed to meet various financial needs, but some offer similar benefits, making them difficult to differentiate. Home loans and mortgage loans are both linked to property, and understanding their distinctions can be complex.
Many individuals assume these terms are interchangeable, but the subtle distinction helps in achieving financial objectives more effectively. While home and mortgage loans may have comparable amounts and tenures, their purpose and security requirements differ.
A home loan is specifically designed to meet the requirement of purchasing residential property. The funds from a home loan can also be used to buy land, a farm, or a house or renovate an existing residence. Home loans are secured loans that require collateral to access funds.
Based on the value of the pledged asset, the bank may sanction up to 85% of the cost. This depends on eligibility, and repayment is made through Equated Monthly Instalments (EMIs). Until the entire amount is repaid, the house remains as security with the lender.
Applying for a home loan has become more convenient, as applications can be submitted online to a bank, NBFC, or financial institution. Home loans require full repayment of the borrowed amount, as failure to repay within the tenure results in the lender possessing the pledged collateral.
The lender has the right to sell the asset to recover the loan amount along with interest.
A mortgage loan is also a secured loan, commonly referred to as a loan against property. This loan can be used for various financial needs, including business expansion, renovation, or education funding. Unlike a home loan, a mortgage loan does not have restrictions on end usage.
A mortgage loan typically has a tenure of less than ten years, requiring an existing property to be pledged as collateral to access funds. Similar to a home loan, ownership of the pledged asset is restored once the full amount is repaid.
The major difference between a home loan and a mortgage loan lies in the nature of the pledged property. A home loan requires the newly purchased house to be held as collateral, whereas a mortgage loan is obtained by pledging an existing property.
Home loan funds are strictly for property purchase or renovation, whereas mortgage loans can be used for any financial requirement.
There is a significant difference between these loan types in terms of tenure, security, and interest rates. Some key differences between a home loan and a mortgage loan are outlined below.
Parameters |
Home Loans |
Mortgage Loans |
|---|---|---|
Purpose |
Funds need to be used for purchasing or renovating a property |
No restrictions on the end use of funds |
Interest Rates |
Lower compared to personal loans |
Higher than home loans but lower than personal loans |
Processing Fees |
Typically ranges from 0.8% to 1.2% |
Typically around 1.5% |
Security/Collateral |
The property being purchased serves as collateral |
An existing property is pledged as collateral |
Prepayment Charges |
Floating interest rate loans do not incur prepayment penalties |
Some lenders impose foreclosure penalties on loans with fixed interest rates |
Depending on the purpose of obtaining funds, you need to choose between a home loan or a mortgage loan. Those planning to purchase a new property or land have to apply for a home loan. A mortgage loan allows funds for business expansion, wedding expenses, or educational costs.
Home loans typically offer lower interest rates and longer repayment tenure. However, mortgage loans generally have higher interest rates and shorter tenure.
Your financial goals and requirements determine opting for a mortgage or home loan. Depending on the eligibility and security requirements, you can choose the right option. Through Bajaj Markets, you can explore various loan options from some of the top lenders.
The application process through this platform is completely online, and you can get competitive interest rates with extended tenures. With minimal documentation, you can get a mortgage loan amount of up to ₹15 Crores and interest rates starting at 8.50% and 9.25%.
A home loan is a loan taken to purchase or renovate a property, where the new property serves as collateral. In contrast, a mortgage loan is a loan secured against an existing property with no restrictions on end use.
Home loans offer lower interest rates and extended repayment tenure. Mortgage loans come with higher interest rates and shorter repayment tenure. The choice depends on financial goals and the intended use of funds.
Mortgage loans typically have higher interest rates and shorter tenure compared to home loans, making them more expensive.
Home loans typically have lower interest rates than personal loans. Mortgage loans have higher interest rates than home loans but lower than personal loans.
Home loans involve a prepayment or foreclosure penalty, typically ranging from 0.5% to 3% of the loan amount. Mortgage loans generally do not have a foreclosure fee.
A home loan can be refinanced into a mortgage loan through refinancing into a new mortgage or a cash-out refinance.
The interest paid on a home loan qualifies for tax exemptions. Mortgage loan funds used for business purposes may offer tax benefits under Section 37(1) of the Income Tax Act.
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