Home loan and mortgage loan: Nine point guide

We often fail to differentiate between home loan and mortgage loan since both are similar. But still there are significant differences between these two types of loan. To purchase or build a new house, one needs to take a home loan, whereas a mortgage loan is taken by a borrower for a property that he/she already owns. Money9 gives you a nine-point explainer on these two loans, which might give you a clear idea:

Purpose

Main difference between these two loans is the purpose of taking the loan. While home loan is only for the construction or buying a new house, mortgage loan may used for any purpose from constructing a house to funding a daughter’s marriage and even for business purpose.

LTV

LTV stands for loan to value ratio. In a home loan the LTV is generally varies from 85% to 90. On the other hand, in mortgage loan LTV generally varies between 65% and 75% of the property value.

Interest rate

Home loan interest rate starts from 6.3% and goes up to 8% or above. On the contrary mortgage loan comes with high interest rate. Interest rate of these loan starts from 8% and goes up to 11% or more.

Tenure

Home loan’s tenure goes up to 30 years, YES Bank offers tenures of even 35 years on home loans. But the tenure of a mortgage loan generally goes up to a maximum of 15 years.

Processing fee

Banks levy processing fee for every type of loan. In home loan the processing fee generally goes up to 1% of the loan amount and in mortgage loan the processing fees goes up to 1.5% of the loan value.

Top up facility

Both loans have top up facility. Mortgage and home loans both have this facility for customers.

Tax benefit

For home loan tax deduction up to Rs 1.5 lakh in a fiscal year is available for each loanee, but no such exemption is available for mortgage loan customers.

Prepayment charge

Both loans have prepayment charge irrespective of the amount and the lender. If a fixed rate of interest is applied, a prepayment fee may be charged.

Documentation

Both home loan and mortgage loan need lots of paper work. Documentation is very important for sanction a loan. Generally, it takes five-seven working days to sanction a home or mortgage loan.

Expert opinion

Both loans are secured in nature and the amount is relatively higher than other loans. “Both mortgage and home loans are high value loans with some similarities and some dissimilarities. But still repayment process of both the loans has a lot in common. Those who take these loans should accord high priority to repayment,” said Saibal Biswas, a personal finance consultant from Kolkata.