Buying a property in today’s economy isn’t a simple walk in the park. While several banks or NBFCs may offer you financial assistance, you still need to know which funds are best to choose. For housing-related financial assistance, there are two of the common loans – home loans and mortgage loans. As both of them are used interchangeably, people often get confused. Both these loans serve different purposes in terms of advantages and loan conditions. Read this blog to know home loan vs mortgage loan key details and the difference between home loan and mortgage loan.
Home Loan vs Mortgage Loan – Key Details and Differences
Knowing a home loan vs mortgage loan key details and differences can help you understand your loan requirement better. Choosing one over the other can potentially affect how your financial future looks. Let’s do a deep dive into Home Loan vs Mortgage Loan and understand the difference between the two.
What is a Home Loan?
A home loan is financial assistance that a bank lends to a borrower to buy, construct, or renovate a property. When you apply for a home loan and it gets sanctioned, the lender transfers the loan amount to the property seller or builder and keeps the property as collateral.
Key features of home loans:
- Used specifically for buying or constructing residential property
- Tenure can go up to 30 years
- Lower home loan interest rates compared to other loans
- Tax benefits under the Income Tax Act for both principal and interest repayment
What is a Mortgage Loan?
A mortgage loan is financial assistance borrowed by keeping your property as collateral. You get an approved loan amount by putting your property as security and use the funds for multiple purposes like –
- Business Expansion
- For educational purposes
- Paying medical bills
- Clear off a debt
It’s important to understand that property remains with you; the lender just has legal rights over it until your loan amount is paid. In many instances, people use a loan against property instead of calling it a mortgage loan.
Key features of mortgage loans:
- Funds can be used for multiple purposes
- Tenure is generally up to 15 years (shorter than home loans)
- Interest rates are usually higher than those on home loans
- Available against both residential and commercial property
Home Loan vs Mortgage: Key Differences
Here’s a side-by-side look at the difference between a mortgage loan and a home loan:
| Feature | Home Loan | Mortgage Loan |
|---|---|---|
| Purpose | To buy, build, or renovate a home | For business, education, medical needs, or other personal expenses |
| Collateral | The home being purchased or constructed | Any property (residential, commercial, or land) |
| Tenure | Up to 30 years | Up to 15 years |
| Interest Rate | Lower (since it is meant for housing) | Higher compared to home loans |
| Tax Benefits | Available on principal and interest repayments | Not usually available |
| Disbursement | Paid directly to the seller or builder | Paid directly to the borrower for flexible use |
Mortgage Loan vs Home Loan: Which One Should You Choose?
You must choose one over the other in “Mortgage Loan vs Home Loan” thoughts by analysing your needs.
- If you wish to own a house and need financial assistance, you should opt for a home loan. A home loan offers lower interest, longer repayment, and tax benefits.
- If you wish to get some funds by putting your already-owned property as collateral, you must opt for a mortgage or loan against property.
Difference Between Home Loan And Mortgage Loan in Terms of Interest Rate
A home loan vs mortgage loan interest rate carries a considerable gap. Since a home loan is slightly safer, banks often end up approving the loan at a lower interest rate. Apart from that, multiple home loan subsidy programs ensure that home loans remain more affordable than a mortgage loan.
On the other hand, Mortgage loan interest rates are higher since the end use is flexible and considered riskier.
Over a long tenure, even a small difference in rate can add up to lakhs of rupees in extra repayment. So, comparing rates before choosing between mortgage vs loan options is crucial.
Tax Benefits: A Big Advantage of Home Loans
One of the most talked about differences between home loan and and mortgage loan is how much money you can save on tax.
- A borrower can claim a tax exemption of up to ₹1.5 lakh yearly on a principal home loan amount under Section 80C of the IT rules.
- Moreover, a borrower can avail tax exemptions of ₹2 lakh yearly for the interest that they pay against a home loan for the property they live in.
- However, a mortgage loan doesn’t offer such tax exemption benefits to the loan borrower as they aren’t purchasing a new home with the sanctioned loan amount.
That’s why you should always opt for a home loan if you intend to buy property. While doing so, you are going to save a lot of money on tax.
Some Common Myths About Home Loan vs Mortgage
Both are the Same: Not true. At the core, every home loan is a type of mortgage since you borrow a loan for a property that can be sold to recover the financial loss. Despite that, the main difference between a home loan and a mortgage loan is that mortgage loan funds can’t be used to purchase land, property, or ready-to-move flats.
Home Loan is Cheaper in Mortgage Loan vs Home Loan Comparison – Again, Not True in every instance. Home loan interest rates depend on various factors like credit score, credit history, lender type, loan amount, etc. There are some cases where a mortgage loan is cheaper in comparison to a home loan.
Repayment of Mortgage Loans isn’t Relaxed – People might think that mortgage loans come with a long repayment tenure period, and this isn’t exactly true. You can opt for mortgage loans with shorter repayment tenure.
Pros and Cons of Home Loans & Mortgage Loans
Home Loan Pros:
- Lower interest
- Long repayment tenure
- Tax benefits
- Promotes asset creation
Home Loan Cons:
- Can only be used for housing purposes
- Strict documentation linked to property purchase
Mortgage Loan Pros:
- Flexible usage of funds
- Larger loan amounts available
- Suitable for business and personal needs
Mortgage Loan Cons:
- Higher interest than home loans
- Shorter tenure
- No tax benefits
When comparing a home loan vs a mortgage loan, it’s not about which one is better overall, but which suits your situation. If you are buying or constructing a house, go for a home mortgage loan. If you already own property and need funds for other purposes, a mortgage loan works best.
