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: How Home Loan Rejection Can Affect Your Credit Score
Tax Benefits on Home Loan vs Mortgage Loan
Many people often confuse home loans and mortgage loans, but they serve different purposes and have distinct tax benefits. Understanding the differences is essential for financial planning and optimizing tax deductions under Indian laws.
Key Differences Between Home Loan and Mortgage Loan
| Feature | Home Loan | Mortgage Loan |
| Purpose | Used to purchase, construct, or renovate a residential property | Can be used for business, personal needs, or debt consolidation using property as collateral |
| Collateral | Property being purchased is the collateral | Any owned property can be mortgaged; not necessarily the one being bought |
| Loan Amount | Typically based on property value and borrower’s eligibility | Based on property value and lender’s appraisal, may be lower than home loan for same property |
| Interest Rate | Usually lower than mortgage loans | Can be higher than home loan rates |
| Repayment Tenure | 10–30 years generally | Flexible but often shorter than home loan tenure |
Tax Benefits: Home Loan vs Mortgage Loan
1. Home Loan Tax Benefits
- Principal Repayment (Section 80C): You can claim a deduction of up to ₹1.5 lakh per year on the principal component of your home loan.
- Interest Payment (Section 24(b)): Deduction of up to ₹2 lakh per year on interest paid for a self-occupied property.
- Additional Benefits: For loans on second homes or rented properties, interest deduction rules may vary, offering flexibility in tax planning.
2. Mortgage Loan Tax Benefits
- Principal Repayment: Deduction under Section 80C is available only if the mortgage loan is used to buy or construct a residential property. Personal or business-use loans do not qualify.
- Interest Payment: Interest on mortgage loans used for non-residential purposes or personal loans does not qualify for Section 24(b) deduction.
- Key Takeaway: Tax benefits are more favorable for home loans, especially when the loan is used to purchase or construct a residential property.
Interest Rates Comparison
Choosing the right loan often depends on the interest rate, as it directly impacts your monthly EMIs and total repayment. Home loans and mortgage loans have different interest rate structures, reflecting their purpose, risk, and tenure. Understanding these differences helps borrowers plan finances more efficiently.
Interest Rate Comparison Table
| Feature | Home Loan | Mortgage Loan |
| Typical Interest Rate | 7% – 9% per annum (varies with lender and loan type) | 8% – 12% per annum (can be higher due to flexible purposes and risk) |
| Rate Type | Fixed or floating | Usually floating; some lenders offer fixed rates |
| Tenure Impact | Longer tenure (up to 30 years) often reduces EMI but increases total interest | Usually shorter tenure, higher EMI for same loan amount |
| Credit Risk Influence | Lower for salaried individuals with property as collateral | Higher for business or personal-purpose loans, affecting rate |
| Tax Benefits Impact | Eligible for Section 24(b) deductions on interest | Interest deductions only if loan is used for property acquisition/construction |
Also read: Factors That Affect Your Mortgage Loan Interest Rate
When Should You Choose a Home Loan or Mortgage Loan?
Choosing between a home loan and a mortgage loan depends on your financial goal, the purpose of the funds, and the property involved. While home loans are ideal for purchasing or constructing residential property with attractive tax benefits, mortgage loans offer flexibility for business, personal, or investment needs using property as collateral. Understanding your objectives can help you select the right option.
| 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 difference for Home Loan vs Mortgage Loan
The application processes for home loans and mortgage loans share similarities, such as verifying identity, income, and creditworthiness. However, they differ in purpose, documentation, and evaluation requirements. Home loans are primarily for purchasing or constructing residential property, while mortgage loans allow borrowers to pledge existing property for diverse purposes like business, personal funding, or debt consolidation. Understanding these differences can help you prepare the necessary documents and streamline the approval process.
Comparison of Home Loan vs Mortgage Loan Application Process
| Feature | Home Loan | Mortgage Loan |
| Purpose and Use of Funds | Purchase, construction, or renovation of residential property | Business expansion, personal needs, or debt consolidation using existing property |
| Property Documentation and Valuation | Verification of property ownership, sale agreement, NOC, approved building plans | Detailed property valuation, title verification, ownership documents, and legal clearances |
| Loan-to-Value (LTV) Ratio | Usually 80–90% of property value | Typically 50–75% of pledged property value, depending on lender and risk assessment |
| Processing Time | 7–21 days for approved documents; disbursement may be in stages for under-construction property | 2–4 weeks due to additional property valuation, legal, and technical assessments |
| Property Eligibility | Residential property, including apartments, plots, and houses | Any owned property (residential or commercial) that can be pledged as collateral |
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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