No matter which part of the country you live in, real estate prices are touching the skies by the minute. Buying a house, in general, turns out to be the biggest expense of a lifetime. To this effect, users can apply for secured loans to meet their financial needs. But which one exactly? Home and mortgage loans are terms that are used interchangeably. However, they serve different purposes and come with a different set of rules. Difference between mortgage loan and home loan in terms of – Purpose, Loan to value ratio, Interest rates, Processing fee, Loan repayment tenure, Documentation and more. This article will help you to choose the best loan for you.
Difference between mortgage loan and home loan
Home loans and mortgage loans both cover large expenses in a secured way. However, they vary significantly in the principles they operate. Here we have listed factors that will help you to choose the best loan for you.
Housing loans are provided only in two circumstances. If the owner needs to purchase a readymade property or build a new residential property. There are no such restrictions on the usage of mortgage loans. The loan amount can be used for both personal and business requirements. For example, marriage, buying a car, medical emergency or debt consolidation.
Loan to value ratio
A home loan can be withdrawn for up to 85 to 90% of the property’s total market. Whereas, only 60 to 70% of the market value can be availed as a mortgage loan.
Mortgage loans charge around 1 to 3 percent higher interest rates compared to home loans. Home loans have lower interest rates because the Indian government wanted to make housing affordable for the citizens and therefore the RBI has minimized the required margins on home loans.
Housing loans are processed at 0.8% to 1.2% fee of the total loan value while mortgage loans charge a processing fee of 1.5% of the entire loan amount.
Loan repayment tenure
Both loans come with long repayment tenures. Home loan tenure can be as long as 30 years while mortgage loans have to be repaid within 15 years. However, several lenders allow for longer mortgage tenures which can last up to 20 years. These loans also allow multiple repayment options based on your financial conditions. Users can pay the loan amount partially or pre-pay the full amount to reduce the tenure or EMI.
The process of availing a home loan is rather simplified. It takes around 15 days for banks to complete the verification and documentation process. In the case of a mortgage, banks go through an elaborate process that involves a check of the property, evaluating the property details, property ownership, etc.
The bottom line – Which one to choose
If your goal is to purchase or build residential property, you should opt for a home loan since a home loan cannot be used for any other purpose. Therefore, if you need funds for a different purpose, a mortgage loan should be your choice.