Home Loan Vs. Mortgage Loan – Know the Difference?
Loans are a quick and easy way of arranging funds when you need a large sum of money to construct a house or meet any emergency need. Loans can be of several types, like home loans and mortgage loans.
A home loan is used for constructing or purchasing a new home. On the other hand, you can use a mortgage loan for anything you need by mortgaging your property to sanction the loan. Thus, the fundamental difference between a home loan and a mortgage loan is in its purpose.
In simpler terms, a home loan is used for purchasing a property and gain ownership of it, while a mortgage loan is used for other purposes where you are already the owner of a property.
Home loan
Purpose
The purpose of a home loan is to construct or purchase a new property. Thus, you are buying the ownership of the property from somebody to have your own house.
Loan to value ratio
The value of a home loan generally goes up to 90% of the total value of the property in the real estate market.
Interest rate
The interest rate of home loans is low. Low-interest rates reduce the financial burden of the borrower while repaying the principal amount and interest rate.
Repayment tenure
Home loans generally have a more extended loan repayment tenure that can go up to 30 years after receiving the loan. It, therefore, helps the borrowers to repay their debts bit0by -bit. Such loans are highly preferred for their long-term tenure. The borrowers do not suffer from any additional financial burden and can complete their other duties even while repaying a portion of the loan every month.
Mortgage loan
Purpose
One can use a mortgage loan, or a loan against property for any purpose. Unlike home loans that can be used only for constructing and purchasing new properties, mortgage loans have no restrictions. The borrower can use the loan amount for any financial emergency. Thus, a mortgage loan provides more flexibility and liberty to the borrower.
However, remember, one needs to keep their property as a mortgage to receive the loan. Failure to repay the loan and the interest might cause the lending institution to seize this mortgaged property. Thus, the mortgage is the guarantee based on which the lender institution sanctions the loan.
Loan to value ratio
The amount you receive from a mortgage loan depends on the value of your property. Lender institutions generally provide up to 70% of the property’s current value in the market. Some lender institutions also provide 60% of the property’s market value. Thus, borrowed should compare different mortgage loan schemes and select the best one.
Interest rates
A loan against property generally has a higher interest rate than a home loan. The mortgage loan interest rate is higher than home loans by 3% and has a processing fee of 1.5 %.
Repayment tenure
The repayment tenure for mortgage loans is shorter than home loans. While home loans have 30 years to repay, mortgage loans only provide 15 years to the borrowers.