Home loan and Mortgage loan meanings differ in a variety of ways that mostly have to do with their end purposes. While both are used to buy a house, the latter can be used to do a little more than that. In India, Mortgage loan is a subset of loan against property – a type of loan where a borrower can pledge his existing, self-owned property for a sum that equals a particular percentage of the market price of the property he owns.
While home loans and mortgage loans have many similarities in features and advantages, they also have significant differences.
Difference between home loan and mortgage loan
The fundamental distinction pointers between mortgage loans and home loans are covered below.
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Tenor
The term “tenor” refers to the period borrowers have to repay a loan plus interest. For example, the term of a home loan might last up to 30 years, depending on the lending institution.
On the contrary, mortgage loan maximum tenure have significantly shorter, from 15 to 18 years. Also, prospective borrowers must be cautious when deciding the tenor, as an extended tenor can increase the total interest outgo and ease the EMI burden.
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Purpose
As previously mentioned, a home loan is typically used to finance the purchase of a ready to move in property or the building of a home. In this case, borrowers are unable to use the money in any other way.
On the other hand, a mortgage loan can be used for various purposes, including business expansion, child education, and marriage. But to avail of it, prospective borrowers use proper documents needed to apply for a LAP.
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Interest rate
In general, both home loan and loan against property interest rates fluctuate significantly depending on the policy and market.
Although a loan against property is a secured loan, they typically have higher interest rates than home loans. This is mainly because financial institutions believe there is a greater likelihood of default on a loan against property compared to a home loan. Therefore, lenders set higher interest rates for mortgage loans to protect the money they lend.
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Tax exemption
Tax incentives are available to home loan applicants under Sections 80C (on principle amount) and 24B (on interest paid) of the Income Tax Act.
On the other hand, a mortgage loan is not tax deductible. Additionally, salaried people can receive tax benefits under Section 24B if they take out this loan and utilise the money to buy a residential property.
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LTV ratio
A lender’s or financial institution’s capability to lend money to a consumer is defined as a loan-to-value or LTV ratio. According to RBI rules, home loans typically range from 75% to 90% of the property’s market value. On the contrary, home ortgage loans have a lower loan-to-value ratio than home loans. In this regard, only 60% to 70% of a property’s value can be financed. Also, a lower LTV automatically results in a lower loan balance.
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Regardless, reputable financial institutions offer the high-value mortgaged property to qualified borrowers to speed up the loan application process. Additionally, these financial institutions provide pre-approved offers on various financial products, including house loans and loans secured by a property. To avail of these, individuals must provide their name and contact number to check their pre-approved offers.
Hence, mortgage loan meaning and home loan meaning is vividly portrayed above, and individuals can opt for the one they need based on their requirements and profitability.
