Home Loan VS Mortgage Loan: Key Differences You Should Know

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When you need financial support for buying a house or meeting other expenses, banks and lenders offer different types of loans. Two of the most common are the home loan and the mortgage loan. While the terms are often used interchangeably, they are not the same. Each serves a different purpose and comes with its own features, benefits, and conditions. Understanding the difference between a home loan and a mortgage loan can help you make a clear and informed decision.

Read this blog to understand the differences between home loans and mortgage loans, their pros and cons, and the common myths around them.

Table of Contents

• What is a Home Loan
• What is a Mortgage Loan
• Mortgage Meaning in Banking
• Home Loan vs Mortgage
• Common Myths About Home Loan vs Mortgage
• Pros and Cons of Home Loans & Mortgage Loans

What is a Home Loan?

A home loan is money borrowed from a bank or financial institution to buy, build, or renovate a house. The loan amount is usually disbursed directly to the property seller or builder, and the property itself becomes collateral for the bank until the loan is repaid.

Key features of home loans:

1. Used specifically for buying or constructing residential property
2. Tenure can go up to 30 years
3. Lower home loan interest rates compared to other loans
4. Tax benefits under the Income Tax Act for both principal and interest repayment

What is a Mortgage Loan?

A mortgage loan is broader. In simple terms, it is money borrowed by pledging a property (residential, commercial, or land) as security. Unlike home loans, the borrowed funds can be used for a variety of purposes, such as:

• Expanding a business
• Funding education
• Paying medical bills
• Managing large personal expenses

Here, the property remains in your name, but the bank has legal rights over it until the loan is cleared. This is why people often call it a house mortgage loan or a loan against property.

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

Mortgage Meaning in Banking

In banking, a mortgage means using your property as security for a loan. You still own the property, but the lender has the right to sell it if you don’t repay the loan. This is the basic idea behind all home mortgage loans and other loans taken against 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:

Mortgage Loan vs Home Loan: Which One Should You Choose?

Choosing between home loans and mortgage loans depends on your needs.

• If your goal is to own a house, then a home loan is the right option. It offers lower interest, longer repayment, and tax benefits.
• If you already own property and need funds for non-housing purposes, a mortgage loan or a loan against property gives you the flexibility to use money as required.

Interest Rates: Home Loan vs Mortgage Loan

One of the biggest deciding factors is the cost of borrowing.

• Home loan interest rates are generally lower because banks consider them safer and are often subsidized by government housing schemes.
• Mortgage loan interest is 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 major difference between a mortgage and a home loan is tax savings.

• Under Section 80C, you can claim a deduction of up to ₹1.5 lakh annually on the principal repayment of a home loan.
• Under Section 24(b), you can claim up to ₹2 lakh annually on interest repayment for self-occupied properties.
• Mortgage loans, however, do not offer such tax benefits since they are not meant for purchasing a new home.

This makes home loans more attractive if your goal is residential ownership.

Common Myths About Home Loan vs Mortgage

1. Both are the Same: Not true. While every home loan is technically a type of mortgage, not every mortgage loan is a home loan.
2. Mortgage Loans Don’t Require Repayment Quickly: Mortgage loans usually come with a shorter tenure compared to home loans, so EMIs may be higher.
3. Home Loans are Always Cheaper: Mostly true, but actual cost depends on your credit profile, loan amount, and lender.

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.

FAQs about Home Loan VS Mortgage Loan