Home Loan VS Mortgage Loan

Home Loan vs. Mortgage Loan: Understand the Differences and Choose the Best Option for You

Home loans and Mortgage loans, also known as LAP (Loan Against Property), are two common loan choices that many people look at when they need to pay for big purchases like a house or their child’s education. Both of these loans are secured, but they are used for different things and have different benefits. In this blog, we will talk about the differences between a home loan and a loan against property. This will help you make a smart decision based on your financial needs and situation.

Table of Contents

  • Home Loan
  • Important Features of a Home Loan
  • Mortgage Loan (Loans Against Property)
  • Important Features of a Mortgage Loan
  • Differentiation between a home loan and a Mortgage loan
  • Interest Rate of Home Loan and Mortgage loan for Major Banks/NBFCs
  • Make the Best Choice

Home Loan

A home loan is a secured loan designed for purchasing a new home, constructing a house, or renovating an existing property. It offers competitive interest rates, tax benefits, and a long repayment tenure. With a housing loan, borrowers can fulfil their dream of owning a home while enjoying affordable monthly payments. The loan amount is based on factors like income and property value, and borrowers have the option to choose between a fixed and floating interest rate. They contribute to the growth of the real estate sector and provide individuals with the means to invest in property.

Important Features of a Home Loan

Loan Purpose: Only for purchasing, constructing, or renovating a residential property.

Loan Term: Usually between 15 and 30 years.

Rates of Interest: It’s usually lower than on personal loans or LAP because there is less risk.

Tax Benefits: According to certain income tax sections, you can deduct both the capital and interest payments you make.

Loan-to-Value Ratio (LTV): Lenders will lend up to 80% to 90% of the property’s value.

Apply for a home loan

Mortgage Loan (Loan Against Property)

Loan Against Property (LAP) is a term used in banking to describe a way for people to receive a large amount of money by putting up their own property as collateral. As the loan amount is based on the property’s current market value, it is called a secured loan. LAP offers competitive interest rates and a longer repayment term, which helps users make better financial plans and pay their monthly bills. The ability to choose how the money is used is one of the best things about a mortgage loan. Borrowers can use the money for many things, like starting a company, paying for school, paying medical bills, or meeting any other personal needs. This makes mortgage loans a flexible loan choice that can meet a wide range of people’s financial needs. Another benefit of a mortgage loan is that it lets people get the correct value of their property without having to sell it. This makes it a useful financial tool for both personal and business needs.

Important Features of a Mortgage Loan

Loan Purpose:It’s flexible and can be used for any legal reason, like growing a business, medical emergencies, education and so on.

Loan Term: Ranges from 15 to 20 years, which is usually shorter than a housing loan.

Rates of interest: Mortgage loan interest rates are not as high as personal loans but not as low as home loans.

Tax Benefits: Property tax benefits are not applicable to loans unless the funds are used for the purchase or construction of a property.

Loan-to-Value Ratio (LTV): Generally, lenders offer between 50% and 75% of the property’s market value.

Differentiation between a Home loan and a Mortgage loan

Feature Home Loan Mortgage Loan
For purchasing a residence, land, or property under-construction
For business or personal use
Up to 90% of property value
Up to 60% of property value
Up to 30 years
Up to 15 years
Tax Benefit
Facilitate under Section 24 (interest) and 80C (principal
Interest Rate
Starts from 8.50%
Starts from 9.50%
Processing Fee
Up to 1% of loan amount + applicable taxes
Up to 1% of loan amount + applicable taxes

Goals and Flexibility: Home loans are limited in what they can be used for; they can only be used for housing-related costs. LAP is easy to use, so users can get money for a variety of personal or business needs.

Interest Rates: Because of how they are structured and what they are used for, home loans usually have lower interest rates. This helps individuals save money in the long run. LAP is less expensive than personal loans, but the interest rate is generally higher.

Loan Tenure and EMI: Home loan tenure generally has longer and lower EMI payments, which makes them good for long-term financial planning. Mortgage loan tenure are shorter, which can mean that the EMI payments are higher.

Tax Benefits: One of the best things about a housing loan is that you can get tax benefits on both the capital and the interest. LAP doesn’t usually give these kinds of benefits unless the borrowed money is used to build or buy a house.

Loan Amount and LTV Ratio: The LTV ratio for home loans is usually higher, which lets borrowers finance an immense portion of the property’s value. The loan amount in LAP is based on the property’s present market value and is usually less than in other types of loans.

Documentation and Processing Time: Since LAP involves mortgaging a home that is already owned, the processing time may be shorter. Home loans can have higher requirements for paperwork because they are usually used to buy a new home.

Risk: There is usually less risk with a home loan because it is used to buy a house. Because there are no limits on what LAP can be used for, it comes with a bigger risk for both the lender and the borrower.

Interest Rate of Home Loan and Mortgage loan for Major Banks/NBFCs

Bank/ NBFC Home Loan Interest Rate Mortgage Loan Interest Rate
State Bank Of India
8.50% onwards
9.95% onwards
PNB Housing
8.75% onwards
10% onwards
Axis Bank
8.75% onwards
10.50% onwards
8.50% onwards
9.50% onwards
Bajaj Finserv
8.50% onwards
9.00% onwards
Kotak Mahindra Bank
8.70% onwards
9.15% onwards

Make the Best Choice

Selecting between a housing loan and a loan against property is largely based on your needs and financial situation. A house loan is probably a preferable option if you want to buy, build, or renovate a home and can take advantage of the home loan tax benefit. A Mortgage loan might be a better option if you need money for a variety of personal or business reasons and already own a home that you can use as collateral.

Backing up your loan with property is called a loan against property. Before you make a choice, you should carefully consider your financial goals, your capacity to repay the loan, and its purpose. You can make the best choice for your long-term goals and financial plan if you know the details of each one. Like any financial choice, it.

General FAQ About Home Loan vs Mortgage Loan:

Difference between home loan and mortgage loan?

A home loan is only for purchasing, constructing, or fixing up a house, and the house itself is used as collateral. Any owned property can serve as collateral for the mortgage loan, which is available for both personal and commercial use. It’s not solely for homes.

What are the eligibility criteria for a home loan and a mortgage loan?

Typically, the requirements for eligibility include having a steady source of income, a good credit score, being between 21 and 65 years old, and verifying the property’s legal and valuation status. The market value and condition of the property are also looked at for Loan Against Property.

What tax benefits are available for a home loan or a mortgage loan?

In India, the Income Tax Act has parts like Section 80C and Section 24 that let people deduct both the principal and the interest on their home loans. When Mortgage loan isn’t used to build or buy a home, it usually doesn’t provide tax benefits.

Is it possible to change a mortgage loan to a house loan?

A mortgage loan (LAP) and a home loan are usually not interchangeable because they are used for different purposes and have different terms. But if you qualify and follow the lender’s rules, you can use an LAP to buy or build a home and then refinance it with a house loan.

What are the potential risks associated with each type of loan?

The main risk with a mortgage loan is the possibility of losing your home if you can’t make payments. Home loans, if unsecured, may have higher interest rates but don’t typically risk property loss.

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