Home Loan vs Mortgage Loan: Understanding the Key Differences
When we are planning to purchase a home or have other personal or business needs, a loan is an excellent way to get monetary support. Home Loans and Mortgage Loans are the most common forms of financing. Even though the terms home loan vs mortgage loan may seem interchangeable, there is a primary difference between the two. It is essential to understand the difference between the two financing options before applying for a loan.
What is a Home Loan?
A home loan is a form of financing that allows an individual to purchase, construct, renovate, or extend the residential property. It is a secured loan type that requires an individual to mortgage the property bought with the loan money till the loan is completely paid. The borrower then clears all payments to the lender in Equated Monthly Installments (EMIs).
Common Uses of a Home Loan
- Purchase of new house or flat
- Buy resale house
- Construction of new house
- Home renovation and extension
- Buy plots (subject to bank approval)
A home loan is the most preferred loan option for most borrowers because it has relatively lower interest rates and longer repayment tenure.
Definition of Mortgage Loan
A mortgage loan, also referred to as a property loan, allows a borrower to use an existing residential, commercial, or industrial property as a mortgage to secure the loan. Mortgages are relatively flexible compared to home loans because they can be used for any personal or business needs. A borrower can apply for a mortgage loan against a commercial, residential, or industrial property based on the property's value, the borrower's income, and the terms and conditions stipulated by the lender.
Home Loan vs Mortgage Loan
Even though the two financing options may seem similar, there is a slight difference between the two. The major difference between a mortgage loan and a home loan is highlighted below:
1. Purpose of the Loan
The major difference between a home loan vs a mortgage loan is the purpose of the loan. The term home loan itself is sufficient to indicate the purpose for which the loan was taken. Individuals take a home loan to purchase, renovate, or construct a house. Unlike the home loan, a mortgage loan is taken against an existing property to raise funds for any personal or business needs.
2. Ownership of the Property
Another difference between a mortgage loan and a home loan is that while a mortgage loan is taken against an existing property, a home loan is taken to purchase a new house. In other words, with a mortgage loan, a borrower pledges an existing property as a mortgage to the lender, whereas, with a home loan, the borrower acquires ownership of the property.
3. End-use of the Loan Amount
While a mortgage loan can be used for any personal or business needs, a home loan can only be used for housing needs. For instance, a mortgage loan can be taken out for business expansion, medical bills, or to pay for educational expenses. On the other hand, a home loan can only be used to purchase, renovate, reconstruct or extend a house.
4. Eligibility Criteria
The eligibility criteria for a mortgage loan and a home loan are almost similar. However, some financial institutions may have slight variations in their requirements for the two loans.
The major aspects that determine the eligibility criteria for the two loans include:
- Income and employment status
- Credit history
- Financial obligations
- Value of the property
- Ability to repay
It is essential to consult a financial advisor to help an individual understand the eligibility criteria for different lenders.
5. Interest Rates
The interest rates for a mortgage loan are relatively higher compared to the interest rates for a home loan. The interest rates for a mortgage loan are higher mainly because a mortgage loan can be taken for different purposes. On the other hand, a home loan is specifically designed for housing needs.
Is a Home Loan or Mortgage Loan the Better Option?
The choice between a home loan and a mortgage loan usually depends on the borrowing needs of the individual. A home loan is ideal for individuals who intend to renovate or extend their houses. Some mortgage loans are also useful for individuals who want to consolidate debts. As highlighted in the differences between a mortgage loan and a home loan, some of the situations that call for a home loan include:
- First-time home buyer
- Repair or renovate a house
- Extend a house
Besides, some of the situations that require a mortgage loan include:
- Funds for business expansion
- Funds for education or medical bills
- Additional funds for any other personal or business needs
Before getting a loan, it is crucial to compare the different loan packages available from different lenders. Comparing the different loan packages helps an individual get the best deal in the market. Individuals should compare the interest rates, processing fees, eligibility criteria, and other terms and conditions of a mortgage loan and a home loan to identify the best option.
Why Professional Consultancy Matters?
The choice between a mortgage loan and a home loan mainly depends on an individual's financial needs and repayment capacity. Every individual has different financial needs and objectives. It is essential to consult a professional financial consultant to help you identify your financial needs, find the best loan option that fits within your financial status, and assist you with the application process. A professional consultancy is vital when applying for a loan because they have the expertise and experience to identify the best loan option for an individual based on their financial status.
Why Choose Delta Chase?
Delta Chase is one of the leading consultancy services in Thrissur, providing loan advice services for individuals and businesses looking for a mortgage loan, home loan, and property loan. We offer the best consultancy services when it comes to comparing home loan vs mortgage loan and other loan options. Our professional consultants can help you compare the best personal loan offers, home loan offers, mortgage loan offers, and property loan offers available in the market.
Conclusion
The major difference between a home loan and a mortgage loan is the purpose for which the loan is taken. A home loan is specifically designed for housing needs, whereas a mortgage loan can be used for any personal or business needs. The choice between the two loan options depends on an individual's financial needs and repayment capacity. With the help of professional consultancy, individuals can achieve their financial goals.
Frequently Asked Questions
A major difference between a home loan and a mortgage loan is the purpose for which the loan is taken. A home loan is a loan option that allows an individual to purchase, renovate, or construct a house, whereas a mortgage loan is taken against an existing property to raise funds for any personal or business needs.
Yes, one of the common uses of a mortgage loan is to raise funds for business expansion. A mortgage loan can also be useful in meeting other personal or business needs, including paying medical bills and educational fees.
Delta Chase offers consultancy services for a home loan, mortgage loan, and property loan. The consultants at Delta Chase analyse various loan options available and can help you compare the best rates and repayment terms.
Have a loan question? Talk to a Delta Chase advisor.
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