You may require a loan for a variety of reasons during your life. Responding to this, there are many loan-based products available in the market today. But as a layperson, it is very easy to confuse one type of loan with another.
For example, many people confuse the terms, home loans and mortgage loans. But a little insight into the subject can clarify how the two are different. Read on to find how to differentiate between the two easily.
A home loan is ideally sanctioned, particularly to aid the construction or purchase of a residential property.
One can usually get a fair idea about the loan amount by using an online home loan calculator. On the contrary, a mortgage loan does not specify or restrict the use of the loan.
In simple words, a home loan can be used to build or buy a new home— a property that is not owned by the person seeking the loan.
A mortgage loan, popularly known as a ‘loan against property’, is sanctioned against a property already owned by the loan seeker.
To clarify the concept further, below are a few points that differentiate a home loan from a mortgage loan:
Purpose
The first and most obvious difference is that a home loan is sanctioned only to purchase or construct a new residential property.
In contrast, a mortgage loan holds no such restriction on the usage of the sanctioned loan amount.
Interest Rates
Mortgage loans are known to charge around 1-3% higher interest rates than home loans.
Repayment Tenor
The repayment tenure for a home loan is longer than that of a mortgage loan. The tenure for the repayment of a home loan can last up to 30 years. While that of a mortgage loan will last for about 15 years.
It is usually wise to use a home loan EMI calculator to calculate your EMI value online.
Loan to Value Ratio
This is one of the fundamental differences between the two types of loans. The home loan can usually be availed for up to 90% of the property’s market value.
On the other hand, the mortgage loan can usually be availed at up to 60-70 per cent of the property’s market value.
Processing Fees
In the case of a home loan, the processing fees ranges from between 0.8% to 1.2% of the loan amount. On the other hand, the processing fee is at around 1.5% of the total loan value.
These are the key differences between home loans and mortgage loans. If you are unsure of whether you qualify for a home loan, you can use CRED’s home loan eligibility calculator and find out.
As the differences clearly indicate, there is no relevance in comparing one loan over the other since both of them work equally well for different situations and circumstances.
However, a binding factor between the two is that no lender can charge a fee for prepayment in case of a floating rate of interest despite the type of loan. Be aware and accomplish your goals with a bit of informed financial aid.
