What is a Mortgage Loan?
A Mortgage Loan is popularly known as a loan against property, wherein the borrower may pledge their existing property as collateral to procure funds. The rate of interest factor depends upon the valuation of the property. Just like a home loan, if the borrower defaults on the payments, then the lender may liquid the date property to recover the losses incurred.
What is a Home Loan?
A home loan is the purchase of a ready possession, an under-construction property, or a plot of land on which the property can be built. In the case of a home loan, the borrower must pay a down payment and the bank or lender will charge a fixed or floating interest rate upon the monthly installments that need to be paid. Just like LAP’s, the borrower can use the property for the tenor of the loan. If the borrower fails to make the payments the lender may liquidate the property and recover the losses.
What is the difference between Home Loan and Mortgage Loan?
A home loan as the name states is for a single purpose only, that is purchasing a property that is residential or commercial, and the funds that you acquire from a home loan cannot be diverted towards anything else. That is not the case for a Mortgage loan, the funds that you acquire have no restriction and can be used for any purpose.
Here is the difference between a Home Loan and Mortgage Loan:
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Purpose of Loan:
A home loan can only be used to construct, purchase possession property, be it residential or commercial.
There are no restrictions on a Mortgage Loan, you can use the funds for any requirements that you have such as wedding expenses, wedding, debt consolidation, renovation, or even purchase of a property.
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Loan Value Ratio:
Both home Loans and Mortgage loans are secured loans, hence the loan sanctioned is a high-value loan.
A Home Loan at the time of valuation can be up to 90% of properties current market value.
A Mortgage Loan is on the lower side, upon the valuation of your property. Considering the eligibility factor, a loan can be availed up to 50-70% of the market’s value.
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Interest Rate:
A Home Loan will always be lower in comparison to Mortgage Loans as the government wants to promote ownership among citizens. It’s rate is 2 to 3% higher than a home loan.
- Tenor:
The repayment tenor for a Home Loan lasts from up to 25-30 years as the commitment towards the purchase of a home can be an expensive one.
A Mortgage Loan typically lasts from up to 18-20 years.
- Processing Fee:
A Home Loan usually has a processing fee of 1 to 1.2% of the loan value although that figure depends upon each lender.
A Mortgage Loan has a processing fee of 1.15% of the entire loan value.
- Tax Benefits:
Under Home Loan’s you are eligible for a deduction of up to Rs. 1.50 lakhs under section 80C on the principal amount and you can even claim tax exemption on the interest paid on your loan value under section 24.
There are no tax benefits for a Mortgage Loan.
- Loan processing duration:
Considering the documents required for home loans and mortgage loans are very similar. The major difference is in the loan disbursement and sanction for the loan.
- Top-Up:
Most loan options available these days have a top-up option to avail more funding if required. Mortgage loans have this convenient feature available if required. Home loans don’t have this option available unless lenders are willing to provide top-ups post further assessment.
Which documents are required for a home loan and Mortgage Loan?
Home loans and Mortgage Loans the documents required are more or less the same. Here is the list of documents:
- ID proof like Pan Card, Aadhaar Card, Passport, Driving license
- Address proof like the property tax bill, passport, electricity bill
- Proof of Income like salary slips for the past 6 months
- Bank statements for the past 12 months
- Income tax returns for the past 3 years
- Property documents that are to be mortgaged
Additional Read: How To Upgrade Your Home With One Simple Step!
