A home loan provides funds to help you improve, build, or buy a residential property. Lenders consider the house or property as collateral for the loan. A mortgage loan, on the other hand, has no restrictions on the use of the loan amount. The difference between a home loan and a home loan makes it clear that each one is ideal for its own purpose.
You may need a loan for many different reasons. Given the different circumstances, there are many different credit products available on the market today. It's easy to confuse some of them with each other. One of those pairs that people get confused with is the mortgage loan and the home 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 home loan can only be used for building a new home or buying a property ready to move in.
There are no restrictions on how the loan amount is used and it can be used to meet both personal and business requirements. You can borrow up to 90% of the market value of the property with a home loan, while you can borrow between 60 and 70% of the market value of the property with a mortgage loan. Mortgage loan interest rates are usually 1 to 3 percentage points higher than the interest rates on home loans and generally between 0.8% and 1.2% of the value of the loan. Both secured loans also offer other services, such as balance transfers, supplemental loans, etc., depending on the total amount of the loan you're eligible for.
You should request one based on your financial requirements. Buying a home is often the biggest expense you would ever make and a home loan is specifically designed for this purpose and, as such, allows you to apply for a larger loan for the same amount of pledged collateral compared to a mortgage loan. Mortgage loan interest rates are lower than home 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 mortgage loans offer long terms; however, the duration of a mortgage loan can be up to 30 years while the term of a home loan is typically 15 years but many lenders offer a longer term of 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 in addition, you can also request 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 case of variable interest rate; if fixed interest rate applies then prepayment fee may be charged which varies from lender to lender. In conclusion, you should opt for a mortgage loan if you want to finance purchase or construction of residential property as it cannot be used for any other purpose; so if you have different requirement then home loan is good option.