Mortgage loans and Home Loans are both secured loans used to either purchase or construct properties. For secured loans, the lender takes collateral in exchange for the borrowed amount so that, if you default, the lender can recover the loan amount using the collateral. However, just because mortgages and Home Loans are secured does not mean they are similar.
So what precisely separates mortgage loans from Home Loans? This article covers the difference between home loans and mortgage loans and how they work.
What is a Home Loan?
A Home Loan is a loan taken to build a new house or property. Home Loans are secured loans, meaning the property you purchase or construct using the amount is used as security by the lender. If you default on the debt, the lender can sell the collateral to recoup its investment.
You can opt for a floating or fixed interest rate on the principal sum. In a Home Loan with a fixed rate, the interest rate on the principal sum is fixed for the duration of the loan. However, over the course of a flexible or variable home loan, the interest rate keeps changing according to the condition of the market.
What is Loan Against Property
Loan Against Property (LAP) is a secured loan where you pledge your property as collateral to borrow a specific sum. Unlike Home Loans primarily for property purchase, LAP loans offers flexibility, allowing you to utilize funds for various purposes like debt consolidation, education, or business needs, making it a versatile financing option.
What is a Mortgage Loan?
A mortgage loan is a secured loan in which you pledge collateral to secure a specific sum of money borrowed. In this loan, the property against which the loan amount is authorised serves as the collateral.
Mortgage loans are also referred to as ‘loans against property’ because they are secured by a piece of real estate, which could be a residential or commercial property. Until the debt is fully repaid, the lender is the legal owner of the property used as collateral for the loan.
You can apply for mortgage loan from various lenders who meet your criteria and offer you the best deal possible.
Home Loans vs Mortgage Loans
Here are the fundamental differences between home loans and mortgage loans, despite the initial similarities between the two types of loans.
| Home Loan | Mortgage Loan |
| A home loan is typically used to buy or build a house. The way you can use the money from this loan is subject to limitations. | The money borrowed as a mortgage loan can be used for business or personal purposes, such as debt consolidation, education, marriage, or property construction. |
| Indian Income Tax Act, 1965 provides a tax exemption | No exemption relief is available |
| Interest rate is lower than mortgage loans | Interest rate is higher than home loans |
| Processing fee is lower than mortgage loans | Processing fee is higher than home loans |
| Longer terms of up to 30 years may be acquired | Maximum tenure is 10-15 years |
| Maximum loan amount is 90% of the market value of the property | Maximum loan amount is up to 75% of the market value of the property |
Documentation Required for Loan Financing
The documents are almost the same when you apply for mortgage loan and Home Loan. The documents required in India when applying for a mortgage or Home Loan are provided below.
- Identification Proof (PAN card, Aadhaar card, driving license, voter ID card)
- Address Proof (Electricity bill, water bill, passport, etc.)
- Income Proof
- Banking Statements
- Property-related Documents
- Income Tax Returns
Conclusion
When applying for a loan, knowing the differences between house and mortgage loans can help you make the best choice.
Alongside the difference between home loans and mortgage loans, they serve different purposes too. Each of them is unique and fits different situations. Besides, both loans are equally accessible to eligible borrowers. So, choose wisely!