Home Loan vs Mortgage Loan: What’s the Difference?
While Home Loan and Mortgage Loan are terms often used interchangeably, they serve very different purposes. A Home Loan is tailored for purchasing or constructing a house, while a Loan Against Property, also called a Mortgage Loan, is a versatile financial tool where funds can be used for almost any personal or business need. Knowing the difference between these two helps you choose the right path for your goals, whether you're buying your first home or unlocking your property's value for other financial commitments.
What is a Home Loan?
A Home Loan is a type of secured loan taken to buy, construct, or renovate a residential property. The property you're purchasing is the collateral for the loan. Lenders usually offer Home Loan benefits such as lower interest rates, long repayment tenures (up to 30 years), and government subsidies under schemes, like PMAY. You can also choose between fixed or floating interest rates based on your risk appetite.
What is a Mortgage Loan or Loan Against Property?
A Mortgage Loan, also known as a Loan Against Property (LAP), is a secured loan where an existing residential, commercial, or industrial property is pledged as collateral. The funds can be used for a variety of purposes, including business expansion, medical expenses, higher education, or debt consolidation. It’s not limited to property-related use, like a Home Loan.
Also Read: What is prepayment in a home loan?
Key Differences Between Home Loan and Mortgage Loan
1. Purpose of Loan
A Home Loan is meant only for purchasing, constructing, or renovating a house. The funds cannot be diverted to other expenses.
A Mortgage Loan, on the other hand, allows flexibility. The borrowed amount can be used for business, education, or personal use, except for speculative activities.
2. Type of Property Accepted
For a Home Loan, only residential properties are eligible—either ready-to-move, under construction, or to be constructed.
For a Mortgage Loan, lenders accept residential, commercial, or industrial properties as collateral.
3. Loan Amount & Tenure
Home Loan vs Loan Against Property differs in how much you can borrow and for how long:
- Home Loan: Up to 90% of the property's market value with a tenure of up to 30 years.
- Mortgage Loan: Usually 60–75% of the property's market value with a maximum tenure of around 15 years.
4. Interest Rates
- Home Loan interest rates are generally lower because the end-use is considered safer by lenders.
- Mortgage Loan interest rates are typically 1–3% higher as the loan can be used for varied purposes and is considered riskier.
5. Tax Benefits
- With a Home Loan, borrowers can claim tax deductions under Section 80C for principal repayment and Section 24(b) for interest paid.
- Mortgage Loans usually do not offer tax benefits unless they are used for specific business purposes and are declared accordingly.
Also Read: Can I Take Multiple Home Loans?
When Should You Choose a Home Loan or Mortgage Loan?
| Criteria | Home Loan | Mortgage Loan (Loan Against Property) |
| Primary Purpose | Buying, constructing, or renovating a residential property | Raising funds for personal or business needs (excluding speculative purposes) |
| Ownership Requirement | Property to be purchased or constructed | You must already own a residential, commercial, or industrial property |
| Interest Rates | Generally lower due to specific end-use | Slightly higher due to flexible usage |
| Loan Tenure | Up to 30 years | Up to 15 years |
| Tax Benefits | Eligible under Sections 80C and 24(b) | Not eligible unless used for business/investment with documentation |
| Best For | Individuals aiming to become homeowners or upgrade existing homes | Property owners needing funds for education, medical needs, or business goals |
Application Process for Home Loan vs Mortgage Loan
The Home Loan application process typically involves verifying your identity, income, and property documents. Once approved, the loan is disbursed in stages based on construction progress or the full amount for ready properties.
The Mortgage Loan process is similar but requires detailed property valuation and documentation for existing owned property being pledged. It may take slightly longer due to the completion of legal and technical evaluations.
Conclusion
Choosing between a Home Loan and a Mortgage Loan comes down to your goal. A Home Loan is your ideal companion when you're on the path to homeownership, offering affordability and tax benefits. But if you need funds for multiple non-housing needs and already own a property, a Loan Against Property gives you flexibility with a slightly higher cost. Know your needs, compare the terms, and pick the one that aligns with your financial goals.
FAQs
Q.1. What is the basic difference between a Home Loan and Mortgage Loan?
A. The main difference lies in their purpose. A Home Loan is meant explicitly for purchasing, constructing, or renovating a residential property. A Mortgage Loan or Loan Against Property allows you to borrow money by pledging an existing property for varied uses like education, medical expenses, or business needs.
Q.2. Can I get tax benefits on both home and Mortgage Loans?
A. Home Loans offer tax benefits under Sections 80C (principal repayment) and 24(b) (interest paid). However, Mortgage Loans typically do not provide tax benefits unless the borrowed amount is used for business or investment purposes and appropriately documented.
Q.3. Which has lower interest rates: Home Loan or Mortgage Loan?
A. Generally, Home Loans come with lower interest rates compared to Mortgage Loans. Lenders consider Home Loans less risky because the funds are used for residential purposes, while Loan Against Property involves more flexible end-use and hence a slightly higher rate.
Q.4. What are the eligibility criteria for a Loan Against Property?
A. To apply for a Loan Against Property, you must:
- Be between 21 to 60 years (salaried) or 65 years (self-employed)
- Own a residential, commercial, or industrial property
- Have a stable income and a good credit score
- Submit property documents for legal and technical verification
Q.5. Can I use a Mortgage Loan for personal purposes?
A. Yes. A Mortgage Loan can be used for various personal needs, such as funding education, marriage, medical emergencies, or business expansion, as long as it’s not for speculative or illegal purposes.
Q.6. Is the loan disbursal process different?
A. Yes, there is a difference. For Home Loans, disbursal usually happens in stages (especially for under-construction properties). For Mortgage Loans, the process involves legal and technical verification of the pledged property and may take slightly longer before complete disbursal.
Q.7. Which is better for buying a house: a Home Loan or a Mortgage Loan?
A. For buying a house, a Home Loan is the right choice. It offers lower interest rates, longer repayment tenures, and tax benefits. A Mortgage Loan is not suitable for purchasing a new home, as it's meant for raising funds against an already owned property.
Disclaimer:
The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.
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