While a home loan is used to finance the purchase or construction of a home, a mortgage loan, on the other hand, comes with no restrictions on how the borrower plans to use the loan amount.
When it comes to home loans, there are various classifications. Depending on what the borrower wants to do with the home loan money, a separate category of home loans needs to be chosen.
For instance, there are home loan, home renovation loan, home extension loan, top-up home loan, loan against property, plot loan, construction loan, home loan balance transfer, non-residential premises loan, loan against commercial property and mortgage loan, among others.
Some of these loans are add-on loans that can be opted with a primary loan. For instance, both home loans and mortgage loans are secured loans that offer additional top-up loan facilities, balance transfer services and so on, depending on the total loan amount that a borrower is eligible for. One might require a loan for a variety of reasons, but with the different home loan products available in the market today, experts say potential borrowers easily get confused with one another. One such confusing type of loan is home loan and mortgage loan.
While a home loan is used to finance the purchase or construction of a home, a mortgage loan, on the other hand, comes with no restrictions on how the borrower plans to use the loan amount. Simply put, when purchasing or building a new house, one needs to take a home loan, whereas a mortgage loan is taken by a borrower for a property that he/she already owns.
Both the loans might sound similar but they are significantly different.
- The purpose of a home loan is only for the construction of a new home or the purchase of a property that is ready for the borrower to move in.
- With a home loan, the loan-to-value ratio is high. The borrower can get a loan of up to 90 per cent of the property’s market value.
- The interest rate of home loans is lower in comparison to mortgage loans.
- The processing fee of a home loan typically ranges from 0.8 per cent to 1.2 per cent of the loan value.
- The repayment tenure of a home loan is one of the longest that is offered to the borrower, up to 30 years.
- With mortgage loans, the borrower is at the liberty to use the money any way he/she wants. There is no restriction on how the loan money can be used. The borrower can use the money towards any home-related expenses or fulfil any personal needs.
- Unlike home loans, the loan-to-value ratio with mortgage loans is comparatively low. One can get a loan of up to 60 to 70 per cent of the property’s market value under this loan option.
- The interest rate charged on mortgage loans normally ranges 1 to 3 per cent points higher than home loans.
- Compared to home loans, the processing fee of mortgage loans is also higher. Lenders usually charge around 1.5 per cent of the loan value as a processing fee.
- The repayment tenure of mortgage loans is generally offered up to 15 years.
- Borrowers also get the top-up facility, wherein one can get extra funding on the existing loans, usually with no extra paperwork.