Difference between home loan and mortgage loan

Introduction

Owning a home is a major life goal for many people in India. But navigating the world of home financing can be overwhelming for many people. Two prominent loan options are home loans and mortgage loans. While they might seem similar at first glance, there are crucial differences that can impact your financial decision. This blog post will shed light on the key differences between home loans and mortgage loans, which will help to empower you to choose the best fit according to your needs.

What sets apart a home loan from a mortgage loan lies in their specific purposes and structures. To kick things off For a lot of folks in India having their own house is a big dream they chase. Yet for many the journey through home loan processes feels like a maze. There are two main ways to borrow money for a house: you can get a home loan or a mortgage loan. Even though they look pretty much the same when you first look at them there are big differences between them that could change what you decide to do with your money. In this blog post the spotlight is on what sets home loans apart from mortgage loans giving you the power to pick the one that suits your needs best.

 

What is a Home Loan?

A home loan is a type of loan which is used to finance the purchase or construction of a residential property. With this loan, buyers can also purchase new land or make improvements to their existing residence. Lenders typically provide home loans with attractive interest rates and repayment terms. Buyers often pay a portion of the purchase price of the property in advance, known as the down payment, in order to qualify for a home loan.

Below are some key characteristics of home loans:

• Purpose-specific: Used exclusively for residential property purchases or construction.
• Lower loan-to-value (LTV) ratio: Lenders usually allow you to borrow up to 80-90% of the property's value, requiring a larger down payment.
• Competitive interest rates: Home loans tend to offer lower interest rates compared to mortgage loans.
• Stricter eligibility criteria: Lenders may have stricter credit score and income requirements for home loan approval.

You may also like to read : Home Loan Tax Benefits in India : Steps to Claim Tax Benefits on Home Loans in 2024

 

What is a Mortgage Loan?

A mortgage loan is a broader term encompassing loans secured by real estate as collateral. This means the property itself guarantees the loan repayment. Mortgage loans can be used for various purposes beyond just home purchases, such as debt consolidation, home renovations, or investment property acquisition.

Here are some key characteristics of mortgage loans:

• Multi-purpose: Can be used for a wider range of real estate-related needs.
• Higher LTV ratio: May allow you to borrow a larger percentage of the property’s value, potentially requiring a smaller down payment.
• Varying interest rates: Interest rates on mortgage loans can be higher than home loans depending on the specific loan type and borrower risk profile.
• Flexible eligibility criteria: May have less stringent eligibility requirements compared to traditional home loans.

 

Key Differences Between Home Loans and Mortgage Loans

Now that we understand both types of loans, let's delve into the key differences:

1. Purpose: Home loans are specifically designed for residential property purchases, while mortgage loans can be used for various real estate needs.
2. Loan-to-Value Ratio: Home loans typically have a lower LTV ratio, meaning you'll likely need a larger down payment. Conversely, mortgage loans may offer a higher LTV ratio, potentially requiring a smaller down payment.
3. Interest Rates: Home loans generally offer lower interest rates due to their focus on residential properties. However, specific mortgage loan options might have competitive rates depending on the loan type and borrower risk.
4. Eligibility Criteria: Home loan eligibility requirements can be stricter in terms of credit score and income verification compared to some mortgage loans.

You may also like to read : Your 7 Step Guide to Home Renovation Loans in 2024 in India

 

What is better for you? Home Loan vs. Mortgage Loan

The best choice for you depends on your specific needs and financial situation. Here's a quick guide:

Choose a home loan if:

• You are buying a primary residence.
• You have a good credit score and can afford a larger down payment.
• You prioritize securing the best possible interest rate.

Consider a mortgage loan if:

• You need financing for purposes beyond buying a primary residence (e.g., renovations, investment property).
• You have a lower credit score or require a smaller down payment.
• The flexibility of purpose outweighs a potentially higher interest rate.

 

Conclusion

Both home loans and mortgage loans can be valuable tools for achieving your real estate goals. By understanding the key differences between them, you can make an informed decision and select the financing option that best suits your needs. If you’re looking to unlock your dream home, Apply Now for a Home Loan or call us on 1800-572-8888. You can also drop a missed call at 7065515122 and we'll get in touch with you.