Learn the Key Difference between Home Loan and Mortgage Loan

10-Feb-2024 | Home Loan

Difference between Home Loan and Mortgage Loan: A home loan typically refers to a financial product used to purchase or refinance a home. On the other hand, a mortgage loan is a broader term encompassing any loan secured by real estate. This is also termed as property loan or loan against property.

What is Home Loan?

A home loan is a type of financial arrangement in which a lender provides funds to an individual or a couple to assist them in purchasing a residential property. The borrower, typically a homebuyer, agrees to repay the borrowed amount over a specified period, often in monthly installments, along with an agreed-upon interest rate.

Benefits of Home Loan

Home Ownership: The primary benefit of a home loan is the ability to own a home. It provides individuals and families with the opportunity to have a place they can call their own.
Tax Benefits: Home loan borrowers in India can avail tax benefits on both the principal amount and the interest paid. Under Section 80C and Section 24(b) of the Income Tax Act, individuals can claim deductions on the principal and interest components of their home loan, reducing their overall tax liability.
Affordable Repayments: Home loans typically offer extended repayment periods, making it feasible for borrowers to make affordable monthly payments over an extended period.
Real Estate Investment: Purchasing a home through a loan can be considered a form of real estate investment. Over time, the property's value may appreciate, providing the homeowner with potential financial gains.
Flexible Repayment Options: Lenders often provide various repayment options, allowing borrowers to choose between fixed and floating interest rates or opt for flexible repayment schedules based on their financial capabilities.
Building Equity: As borrowers make monthly payments, they gradually build equity in their homes. Equity can be used for future financial needs, such as funding education, home renovations, or other major expenses.
Improved Credit Score: Timely repayment of a home loan can positively impact an individual's credit score. A good credit score opens up opportunities for obtaining credit in the future at favourable terms.
Inflation Hedge: Real estate is often considered a hedge against inflation. As the value of the property increases over time, it can help protect the homeowner's investment against the eroding effects of inflation.
Sense of Security: Having a home provides a sense of security and stability for individuals and their families. It offers a permanent residence and eliminates concerns about frequent changes in living arrangements associated with renting.

What is Mortgage Loan?

A mortgage loan, often referred to as a property loan or loan against property, is a versatile financial tool designed to cater to the specific needs of individuals. Beyond its traditional use for financing the purchase of a home, a mortgage loan can be employed for a myriad of purposes, making it a flexible and accessible solution for various life events.

Wedding Expenses

Individuals can utilise a mortgage loan to fund significant life events like weddings. Whether it's covering venue costs, catering, or other essential elements, a mortgage loan provides a financial cushion during joyous occasions.

Higher Education

Pursuing higher education often comes with substantial costs. A mortgage loan can assist individuals in funding tuition fees, accommodation, and other educational expenses, ensuring that financial constraints do not hinder academic pursuits.

Hospital Expenses

Unexpected medical emergencies can lead to substantial bills. A mortgage loan can act as a lifeline, offering financial support to cover hospital expenses, medical treatments, and rehabilitation costs.

Travel and Exploration

For those with a desire to explore the world, a mortgage loan can be a means to fund travel expenses. Whether it's a dream vacation, sabbatical, or an adventurous journey, the loan against property provides the necessary funds.

Difference between Home Loan and Mortgage Loan

Sr. No.	Aspect	Home Loan	Mortgage Loan
1	Definition	A loan specifically for purchasing or refinancing a residential property.	A broader term encompassing loans secured by real estate, including residential properties.
2	Purpose	Primarily used for buying a home or residential property.	Can be used for various purposes, including buying or refinancing homes, residential property.
3	Collateral	The purchased property acts as collateral.	Necessitates the property being financed to serve as collateral.
4	Borrower	Typically for individual homeowners.	Only for individuals.
5	Loan Tenure	Typically has longer loan terms, such as 15 to 30 years.	The loan tenure for a mortgage can extend up to 15 years.
6	Accessibility	Often more accessible to individual borrowers.	Can be accessible to individuals and businesses.
7	Tax Benefits	Interest paid on home loans to be eligible for tax deductions.	Tax benefits on the interest paid can be availed by the borrower under Section 37(1) of the Income Tax Act only if the loan amount is utilised for business purposes. The borrower is required to provide evidence confirming that the funds have been utilised solely for business purposes.
8	Documentation	Documentation requirements are specific to residential property transactions.	Documentation requirements may vary based on the type of property and loan purpose.
9	Appraisal	Property appraisal is a standard part of the home loan process.	The appraisal is generally required to assess the property's value accurately.
10	Insurance	Requires homeowners insurance to protect the property and the lender.	Property insurance is usually required to protect the property and the lender's interest.
11	Use of Funds	Funds are explicitly for purchasing or refinancing a home.	Funds can be used for various purposes, such as hospital expenses, weddings, higher education and or business expansion etc.
12	Closing Costs	Involves closing costs related to property purchase transactions.	Closing costs may apply, and the structure can vary based on the loan type and terms.
13	Lender Type	Typically offered by HFCs, NBFCs, and banks.	Offered by various financial institutions, including banks, mortgage companies, and private lenders.
14	Down Payment Requirements	Generally requires a down payment, with the amount varying based on factors like loan type and credit.	Down payment is not required.

Conclusion

In conclusion, understanding the Difference between Home Loan and Mortgage Loan is crucial for anyone navigating the complex landscape of real estate financing. While both terms are often used interchangeably, the differences in their definitions can significantly impact borrowers. A home loan generally refers to the broader category of loans used for purchasing or refinancing residential properties, encompassing various types of financing. On the other hand, a mortgage loan specifically pertains to the legal agreement between the borrower and the lender, outlining the terms and conditions for the property's financing.

Recognizing these differences empowers individuals to make informed decisions, ensuring they choose the most suitable financial option tailored to their unique needs and circumstances. Ultimately, whether embarking on homeownership or seeking to leverage property assets, a comprehensive understanding of home loans and mortgage loans is paramount for financial success in the realm of real estate.