“Home loan” and “mortgage loan” are traditional terms for borrowing money to buy real estate or leverage an asset. While these names are sometimes used interchangeably, they have very different scopes, purposes, and structures. Understanding these variations is critical for making sound financial decisions. In this blog, we will go over the basics of home loan vs mortgage loan, highlight their similarities and distinctions, and determine which one is best for you.
What is a home loan vs mortgage loan ?
- About Home Loan: When exploring your options for financing a home purchase, you may encounter the difference between a mortgage and a home loan. Mortgage Loans: A home loan is intended only for the purchase of residential real estate as opposed to as a mortgage loan, which can be used for a much broader selection of housing types. Axis Bank home loans start at just ₹3 lakh. You have the option for fixed or adjustable interest rates, which provides budget flexibility. While floating rates can change depending on the state of the market and may provide savings during times when interest rates are lower, fixed rates provide stability in repayments.
- About Mortgage Loan: Knowing that a mortgage loan is a flexible financial tool is the first step in comparing it to a home loan. It meets a range of requirements, including financing education and corporate expansion. You can get a loan starting at ₹5 lakh with Axis Bank’s Loan Against Property. This option provides a workable answer to your financial needs by enabling you to leverage the value of your property while maintaining ownership.
Key Differences Between Home Loan vs Mortgage Loan
| Aspect | Home Loan | Mortgage Loan |
| Purpose | The loan can be used only for the purchase of a house or property | The loan can be used to cover any financial requirement |
| Security | The house/property you’re planning to buy acts as collateral | Your existing house acts as collateral |
| Interest Rates | Lower than personal loans | Lower than personal loans but more than home loans |
| Loan Amount | Depends on factors like income, credit score, and property value | Depends on property value |
| Loan Tenure | Flexible tenure options, typically up to 20 years | Tenure is usually less than 15 years |
| Repayment Tenure | No prepayment fees for floating-rate home loans | May come with a prepayment and/or part payment fees |
| Loan-to-Value Ratio | Typically, up to 85% of the property value | Typically, up to 60% of the property value |
How to Choose Between Home Loan and Mortgage Loan?
The only factor you need to take into account when deciding between a mortgage and a home loan is why you are taking out the loan. It would be wiser to apply for a home loan if you intend to purchase a new home or piece of real estate. Longer repayment terms and reduced interest rates are features of home loans. A mortgage loan or loan against property might be a preferable choice, though, if you already own real estate and wish to borrow against it to satisfy any financial obligations. Mortgage loans are not subject to end-use restrictions.
Difference between Home Loan and Mortgage Loan
- Interest rate
- Home Loan: Since lenders view these loans as less risky, interest rates are typically lower. They are more economical and frequently connected to benchmarks such as the RBI’s repo rate. Use Axis Bank’s Home Loan EMI Calculator, an easy-to-use tool that makes it simple to estimate your home loan EMIs, to precisely manage your finances and comprehend your monthly outgo.
- Mortgage Loan: Interest rates on mortgage loans are often higher than those on home loans, by roughly 1% to 3%. This is because of the increased perceived danger and wider use.
- Loan-to-value ratio (LTV)
- Home Loan: Home loans usually have a higher LTV, which can be as much as 80–90% of the property’s worth. This implies that you can borrow a higher percentage of the value of your property.
- Mortgage Loan: The LTV for mortgage loans, on the other hand, is often lower, ranging from 60 to 70 percent. This represents the bank’s evaluation of risk for loans taken out for uses other than purchasing a home.
- Processing fees
- Home Loan: Home loans are more reasonable due to their comparatively lower processing fees. Usually, it is between 0.8 and 1.2% of the loan balance.
- Mortgage Loan: Because mortgage loans require more administrative labor, processing costs may be higher. They may amount to approximately 1.5% of the loan balance.
- Loan tenure
- Home Loan: Smaller monthly payments can be spread out over a longer length of time thanks to their longer tenures, which can reach 30 years.
- Mortgage Loan: Mortgage loans often have a shorter term, with a maximum of 15 years, which results in larger monthly payments but a faster payback.
- Repayment tenure
- Home Loan: With choices for lengthier tenures, you are free to select a repayment plan that best fits your financial circumstances. This enables you to adjust your payment plan to fit your budget.
- Mortgage Loan: Mortgage loans typically have shorter payback terms, which may mean larger monthly payments but lower overall interest paid over the loan’s term.
Conclusion
Making wise financial decisions requires knowing the differences between a Home Loan vs Mortgage Loan. Although they are both employed to increase the value of real estate, their objectives, terms, and conditions differ greatly. While mortgage loans provide more financial freedom, home loans are only intended for the purchase of residential properties. To assist you in selecting the best choice for your requirements, this article examines their main distinctions.