The terms “mortgage” and “home loan” are often used interchangeably, but they don't mean exactly the same thing. A mortgage is a loan used to purchase a property that is secured by the property itself. A mortgage loan is a type of mortgage that is specifically used to buy a home. On the other hand, a home loan has no restrictions on the use of the loan amount.
It's easy to get confused between these two types of loans, so let's take a closer look at the difference between a home loan and a mortgage loan. In simple terms, a mortgage loan is a loan taken to buy or build a new home, that is, the property is not owned by the loan applicant. A mortgage loan, also known as a loan against property, is a loan secured by a property that the borrower already owns. The question of which of the two is better is not really relevant, since they have different purposes.
A mortgage loan is only for building a new home or buying a property ready to move in, while a home loan can be used to meet both personal and business requirements. Mortgage loans usually offer higher amounts of money than home loans, with interest rates between 0.8% and 1.2% of the value of the loan. Both secured loans also offer other services such as balance transfers and supplemental loans, depending on the total amount of the loan you're eligible for. Mortgage loan interest rates are lower than mortgage loan interest rates because the Indian government wants to make housing affordable for all and, therefore, the RBI has minimized margin requirements for mortgage loans.
Both home loans and home loans offer long terms, with mortgage loans typically lasting up to 30 years and home loans up to 20 years. These loans also allow you to make partial or full prepayments to reduce permanence or EMI, depending on your financial conditions. Mortgage loans usually allow you to apply for a supplemental loan instead of your current loan. This is possible since you may be eligible for a much larger loan than the one you initially applied for.
For example, if you qualify for a loan of up to 70% of the market value of the property but you initially applied for a loan for 50% of the value, you can apply for a supplementary loan for the remaining amount you are entitled to. Mortgage loans generally don't offer an additional service, although some lenders may offer it based on their own assessment of your ability to repay. You can apply for a deduction of up to 1.5 lakh under Section 80C on the repayment of the principal of a mortgage loan and an exemption under Section 24 on the payment of interest on your mortgage loan. There are no tax benefits available on general-purpose home loans.
Regardless of the type of loan you have applied for, no lender can charge a prepayment fee in the case of a variable interest rate. If a fixed interest rate applies, a prepayment fee may be charged but this varies from lender to lender. In conclusion, if you want to finance the purchase or construction of a residential property then you should opt for a mortgage loan as it allows you to apply for larger amounts with lower interest rates than home loans. Home loans cannot be used for any other purpose so if you have another requirement then this type of loan is more suitable.