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calenderFeb 9, 2024

Home Loan vs Mortgage Loan: Exploring the differences

In the realm of real estate financing, the terms "Home Loan" and "Mortgage Loan" are often used interchangeably. This might be for many prospective homeowners. However, beneath the surface, these terms carry distinct meanings and implications. When navigating the financial landscape, distinguishing between a Home Loan and a Mortgage Loan is essential. This guide will clarify the Home Loan vs Mortgage debate, helping you understand their distinct purposes. Whether you're a first-time buyer or a seasoned homeowner, understanding these financial instruments is important for property ownership. Let us delve into these two loan types to understand their nuances and applications.

About Mortgage Loan

A Mortgage Loan vs Home Loan comparison starts with understanding that a Mortgage Loan is a versatile financial tool. It caters to various needs such as business expansion or funding education. With Axis Bank's Loan Against Property, you can secure a loan starting from ₹5 lakh. This option allows you to leverage your property's value while retaining ownership, offering a practical solution for your financial requirements.

About Home Loan

While exploring home financing options, you might encounter the comparison of House Loan and mortgage. It's important to note that Home Loans are specifically designed for residential property purchases, distinguishing them from the broader application scope of Mortgage Loans. Axis Bank's Home Loans start from as low as ₹3 lakh. You have the choice between fixed and floating interest rates, providing flexibility to align with your financial planning. Fixed rates offer stability in repayments, while floating rates can fluctuate based on market conditions, potentially offering savings during periods of lower interest rates.

Difference between Home Loan and Mortgage Loan

In the Housing Loan vs Mortgage Loan comparison, the primary difference lies in their purpose and usage. Home Loans are specifically used for buying or constructing a house, whereas Mortgage Loans are more flexible and can be used for various purposes, provided you have property to offer as collateral.

Let's explore the different aspects in detail:

1. Loan-to-value ratio (LTV)

This determines how much you can borrow against the value of your property. A higher LTV in Home Loans means you can finance a larger portion of your home purchase.

  • Home Loan: The LTV for Home Loans is typically higher, often reaching up to 80-90% of the property's value. This means you can borrow a larger portion of your property's value.
  • Mortgage Loan: In contrast, the LTV for Mortgage Loans is generally lower, around 60-70%. This reflects the bank's risk assessment for loans used for purposes other than home buying.

2. Interest rate

  • Home Loan: Interest rates are usually lower, as these loans are considered less risky by lenders. They are often linked to benchmarks like the RBI's repo rate and are more cost-effective. To accurately plan your finances and understand your monthly outgo, use Axis Bank's Home Loan EMI Calculator, a user-friendly tool that helps you estimate your Home Loan EMIs effortlessly.
  • Mortgage Loan: Mortgage Loans usually carry a higher interest rate, about 1-3% more than Home Loans. This is due to the broader use and higher perceived risk.

3. Processing fees

These upfront costs can impact your total loan expense.

  • Home Loan: The processing fees for Home Loans are relatively lower, making them more affordable. It is typically around 0.8-1.2% of the loan amount.
  • Mortgage Loan: Mortgage Loans may have higher processing fees, reflecting the additional administrative work involved. They can be around 1.5% of the loan amount.

4. Loan tenure

  • Home Loan: They offer longer tenures, up to 30 years, allowing for smaller monthly payments spread over a longer period.
  • Mortgage Loan: The tenure for Mortgage Loans is usually shorter, capped at around 15 years, leading to higher monthly payments but a quicker payoff.

5. Repayment tenure

  • Home Loan: You have the flexibility to choose a repayment plan that suits your financial situation, with options for longer tenures. This allows you to tailor your repayment schedule to your financial situation.
  • Mortgage Loan: The repayment tenor for Mortgage Loans is generally shorter, which might require higher monthly payments but results in less total interest paid over the life of the loan.

6. Prepayment charges

The ability to pay off your loan early without penalty can be a significant advantage, especially for Home Loans with floating rates.

  • Home Loan: For Home Loans with floating interest rates, many lenders, including Axis Bank, do not charge a penalty for prepayment. This offers you the flexibility to pay off your loan early without extra charges.
  • Mortgage Loan: Prepayment charges for Mortgage Loans can vary. Some lenders may impose a penalty for early repayment, especially if the loan has a fixed interest rate.

The difference between mortgage and Home Loan extends beyond just their purposes; it influences every aspect of the loan, from the amount you can borrow to the costs involved.

Also Read: Types of Home Loans: 5 different kinds of Home Loans

The takeaway

Understanding the mortgage vs Housing Loan differences is crucial for making informed financial decisions. Whether you opt for a Home Loan or a Mortgage Loan, Axis Bank offers solutions with competitive rates and flexible terms. Timely repayments not only free you from debt but also improve your credit score, opening doors to future financial opportunities. Choose the loan that best fits your needs and embark on your journey towards financial freedom with Axis Bank.

Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.