In spite of the difference in application, home loans and mortgage loans are often used interchangeably. Let us understand why, and try to understand the difference between the two clearly. Depending on what the borrower chooses to do with the loan money- the borrower is offered a variety of loans in the category. For example, there are home loans, home renovation loans, plot loans, construction loans, top-up home loans, loans against property, non-residential premises loans, and mortgage loans, among others. Most of these loans are add-on loans and can be availed with a primary loan category. It is natural for any buyer to get confused among the various loans available in the market. However, each loan serves a specific purpose and we have stated the basic difference in tenure, rate of interest, and tax benefits between a home loan and a mortgage loan.
Here, let’s look into the basic difference between the two and understand which is best suited for you as a borrower. A home loan is specifically used to buy or construct a home; on the other hand, a mortgage loan has no restriction upon how the borrower plans to use the loan amount.
Let us look in detail at the difference between the two loans – A Home Loan and A Mortgage Loan.
A home loan is a loan offered by banks and other financial institutions to specifically buy a home or a residential property. The loan-to-value ratio of a home loan is usually between 80-90 percent of the current market price of any given property. The rate of interest applied in this category of loan is usually lower than a mortgage loan. The processing fee of such a loan is 0.8- 1.2 percent of the total loan amount. The tenure of a home loan is up to 30 years. The home loan usually offers a tax benefit under Section 80C, Section 24, Section 80EE, and Section 80EEA.
Whereas a mortgage loan is offered to a borrower without any restricted covenants, the borrower has the liberty to use this borrowed amount for any purpose that he/she wishes. The loan-to-value ratio offered in this category of loan is 60-70 percent of the value of the property. The rate of interest applicable in this category of loan is 1-3 percent higher than that of a home loan. The processing fee of such a loan is 1.5 % of the entire loan amount. The tenure of this loan is up to 15 years. While the borrower enjoys no tax benefit in this kind of loan.
We hope that you have understood the basic difference between a home loan and a mortgage loan and will apply this knowledge to avail the best loan suited for your specific purpose.
