If you are searching the market for a home loan, you may have come across the term ‘mortgage’. But, is it the same as a home loan? Let’s find out.
What is a Home loan?
A Home loan is a type of loan used for buying a house, a plot of land for house construction, or the renovation, extension, and repair of the existing house. A home loan has a pre-set nature wherein the lenders check your repayment capacity based on factors like:
- Monthly surplus income and expenses
- Stability of employment
- Co-applicant’s income, etc
Based on these criteria, the lenders set the home loan tenure and amount. Besides, you can use a home loan EMI calculator to estimate the EMI payments based on the lender’s interest rates and compare different lenders before you apply for home loan.
What is a Mortgage Loan?
A mortgage loan or simply mortgage is a type of loan secured by a property or real estate, with a specific interest rate and tenure. To service a mortgage, a borrower has to pay the stipulated EMI amount consisting of two components – interest and principal. And, in case a borrower defaults on their mortgage, the lender has the right to claim the borrower’s property.
Home loan Vs Mortgage Loan
To the uninitiated, the two terms – home loan and mortgage loan seem interchangeable. However, the two types of loans are different in many aspects, such as:
- Collateral – In a mortgage loan, your property serves as collateral, but this is not always the case for a housing loan. A borrower can use other assets as security to procure a home loan. However, most of the home loans available in India are mortgages.
- Home loan Interest Rate – Both home loans and mortgages are available at a fixed or floating home loan interest rate. However, home loan rates are lesser than the mortgage interest rates, so a home loan is cheaper.
- Loan Amount – If you take a mortgage, you can obtain a loan amount higher than 60% of the property’s market value. But, for a home loan, the lender requires you to cover 10%-20% of the property cost as down payment when buying a house while the lender finances the rest.
- Loan Disbursement – Lenders disburse a home loan directly to the home seller’s account, unlike a mortgage, wherein the lenders disburse the loan amount directly to the borrower. As a result, borrowers can also use the mortgage loan for personal funding instead of buying a house.
- Tax Benefits – Borrowers can claim several tax deductions on the principal and interest component of the home loan repayment, for both self-occupied and rental properties. However, there are no tax benefits for salaried borrowers repaying a mortgage loan.
The Bottom Line
A home loan and mortgage loan have many differences in terms of interest rates, tenures, etc. Therefore, before applying for a home loan online, make sure to go over the eligibility criteria for each type of loan, provided by different lenders.
You can also check your home loan eligibility online by using a home loan eligibility calculator and choose wisely.