To meet various financial needs and emergencies, we often consider applying for a Loan. Banks and financial institutions offer diverse credit options, but it is crucial to understand the distinctions. Two common types of Loans are Home Loans and Mortgage Loans. While both involve property, they serve different purposes. Here is a closer look at the distinctions between Home Loans and Mortgage Loans to help you make informed financial decisions.
What is Home Loan?
A Home Loan is specifically designed to purchase a new house or a resale residential property. It is secured against the purchased property and provides the necessary funds to buy a home. The Loan tenure and interest rates are based on the customer’s eligibility, bureau score and other factors as per existing policy.
What is Mortgage Loan?
A Mortgage Loan or Loan Against Property (LAP) lets you borrow funds leveraging your existing property as collateral. This type of Loan can be used for various purposes, including personal needs, business expansion or other financial requirements. It offers more flexibility in usage than a Home Loan.
Choosing between a Home Loan and a Mortgage Loan depends on your needs.
Home Loan vs Mortgage Loan: Know the Difference
There is a big difference between a Home Loan and a Loan Against Property. Let us understand in detail. A Home Loan is an Unsecured Loan option, usually taken by prospective buyers who want to purchase a new home, plot or fund an under-construction property. On the other hand, a Loan Against Property is a Secured Loan type that lets borrowers meet financial needs for any major life event, fund businesses or use the amount for a medical emergency. As the name suggests, you must mortgage your property in exchange for the Loan amount. The amount approved depends on the value of the property you want to mortgage.
Home Loan vs Mortgage Loan - 6 Differences between Home Loan and Mortgage
Let us understand the major differences between a Home Loan and a Mortgage Loan, considering the various aspects related to both the Loan types:
1. Interest rate:
Often, while applying for any Loan, we as borrowers consider the rate of interest along with other factors. As compared to a Home Loan, a Loan Against Property has a high interest rate. If you are opting for a Home Loan from a reputable institution like ICICI Bank, you can get the Loan at an interest rate of 6.80% per annum. You can also apply for a Loan Against Property at the rate of 8.75% per annum.
2.Loan to value:
A bank considers income, job security, job type, etc. before approving a specific Home Loan amount. On the other hand, the Loan amount you can avail from a Loan Against Property is dependent on the value of the property.
3. Usage:
A Home Loan should be specifically used to buy a house, a plot or an under-construction property. A Loan Against Property on the other hand can be used for anything – be it a wedding, a car, medical emergency, debt consolidation or business. The reasons to apply for a Loan Against Property may vary.
4. Tenure:
The tenure of a Home Loan can be a maximum of 30 years. In the case of a Loan Against Property, the Loan tenure can only be up to 15 years.
5.Documentation:
In the case of a Home Loan, the documentation procedure is simple. Banks can take around 15 days to complete the verification and documentation. But in the case of a Loan Against Property, it can take quite long as banks must conduct a thorough check of the property, evaluate the property details, property ownership, etc.
6. Taxation:
When it comes to Tax savings, a Home Loan is eligible for Tax deduction up to Rs 1.5 lakh on the principal amount under Section 80C of the Income Tax Act. On the other hand, there are not many Tax benefits for a Loan Against Property, except if the Loan amount is used to fund a new house under Section 24 of the IT Act.
The decision to choose between a Home Loan and a Mortgage Loan depends on your requirement. If you are facing a shortage of funds for any event, you can opt for a Loan Against Property instead of a Home Loan.
FAQs
Is a Mortgage Loan the same as a Loan Against Property (LAP)?
Yes, in India, a Mortgage Loan is commonly referred to as Loan Against Property where an existing property is pledged as collateral.
What is the difference between a Home Loan and a Loan Against Property?
A Home Loan is used to purchase or construct a residential property. A Loan Against Property (LAP) allows you to pledge an existing property as collateral to raise funds for business or personal requirements.
What is the interest rate difference between a Home Loan and a Loan against property?
Home Loan interest rates are generally lower as funds are used for property acquisition. Mortgage Loan rates may be comparatively higher depending on various criteria.
What are the tax benefits on Home Loan vs Loan Against Property in India?
Home Loans offer tax benefits on principal and interest, subject to applicable provisions. Tax benefits on a Loan Against Property depend on the end use of funds.
Can a Mortgage Loan like a Loan Against Property, be used for purposes other than buying a house?
Yes, a Mortgage Loan can be used for business expansion, education, medical expenses or other personal financial requirements.
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