Primarily, a home loan or home finance refers to the financial help taken from a bank or lender or financial institution like Aditya Birla home loan, IIFL home loan, Axis Bank, HDFC Bank, etc. to construct or purchase a home, while a home mortgage is also known as a loan against property (LAP) is the financial assistance availed against a home or immovable property for any purpose, according to your requirement.
What is the difference between a home mortgage and home finance?
A home loan or home finance is the financial assistance availed to purchase a home from any seller or to construct a home independently. A home mortgage is a type of loan availed, keeping the home as security or collateral for that specific loan. Here, the immovable property involving commercial and residential can be kept in the form of security with the bank lender. In simple terms, the loan availed is secured against the property you mortgage.
Now, even while both home mortgage and home finance are secured against immovable property, the loan amount usage makes them distinct from one another. In the scenario of a home loan, the loan proceeds must be used just to construct or purchase a home. However, the amount availed in the case of a home mortgage can be utilized by you for any reason as per your requirement. This can be looked upon as a bigger value personal loan availed against the property.
In both cases, if you are not able to pay the availed loan, the lender has the full right to seize as well as sell the property to recover its outstanding proceed.
Also Check: IIFL home loan
Who endows home mortgage and home finance?
Home loans and home mortgages can be availed from financial institutions like banks, NBFCs (Non-Banking Finance Corporation) and HFCs (Home Finance Companies). As the name suggests, NBFC is a financial institution whose business consists of just loans and zero banking services. Even HFCs, too, are essentially NBFCs. However, they deal just with mortgages and home loans.
For instance, banks involve institutions such as ICICI bank, State Bank of India (SBI), Axis Bank, etc. NBFCs involve companies such as Muthoot Finance, Bajaj Finserv, Tata Capital, Fullerton India, and others. HFCs include companies such as LIC housing finance, DHFL, GIC housing finance, etc.
How many proceeds can be availed on the property?
The maximum loan amount can be taken up for a property or against the property depending on your eligibility and the property to be bought or mortgaged. Your eligibility is dependent on your age, repayment capacity, and your employment status. Your eligibility criterion remains nearly the same for the home loan and mortgage. However, it might vary from one lender to another according to your respective guidelines.
On the same lines, property eligibility is dependent on the type, location, type, and other important property parameters.
| Particulars | Mortgage loan | Home loan |
| Objective | Zero restriction on how the loan proceeds are used. It can be utilized to mitigate both business and personal needs. | Usually provided to purchase a home or for the construction of a new home |
| Loan to Value Ratio (LTV ratio) | A loan can be taken up of up to 60 – 70 per cent of a property’s market value. | A loan can be taken up of up to 90 per cent of a property’s market value |
| Rate of interest | Mortgage loan rates are usually 1 to 3 % points more compared to home loan rates. | Low when compared with mortgage loans |
| Processing fees | Usually, 1.5 per cent of the loan value | Fees primarily range between 0.8 per cent and 1.2 per cent of the loan amount. |
| Repayment tenure | Up to 15 years | Up to 30 years |
What’s the difference between a home loan and a mortgage?
Maximum loan proceeds
Mortgages can be generally availed just up to 50 to 70 per cent of the property’s market value, even known as the LTV ratio or loan to value ratio, which is evaluated by a lender or 3rd party consultant appointed by the bank lender. However, a home loan may be availed of as high as 90 per cent of the loan agreement value. Even note that the LTV ratio might differ according to the property kind, location, age and even from one lender to another. However, few lenders might even grant mortgages of up to 90 per cent of the property’s value in certain cases based on your financial track record, repayment tenure and property type.
Repayment tenure
Usually, mortgage loans are provided for as high as 20 years of repayment tenure or your retirement age, whichever is lesser. However, a home loan can be taken up for the highest repayment tenure of 30 years or retirement age, whichever is lesser. This repayment tenure even differs from one bank to another.
Rate of interest
Mortgages have higher interest rates than home loans. Generally, the minimum interest rate for a home loan begins from 6.80 per cent p.a., while the same for a loan against property begins at nearly 10 per cent p.a. Now, such interest rates might differ from one lender to another and even as per the amount, loan repayment tenure and other important criteria according to the lender.
Even home loans are highly eligible for subsidies by the government, which further reduces the effective interest rate. Mortgages are not eligible for such kinds of subsidies.
Prepayment fees
Home loans do not attract any prepayment or foreclosure fees if paid via your own funds. But few lenders may levy 1 to 2 per cent of the foreclosure or prepayment amount for the loan proceeds if the loan is availed at a fixed interest rate. In the scenario of mortgages, lenders levy nearly 3-4 per cent of the prepayment or foreclosure charge according to the guidelines and rules, regardless of what kind of borrower you are. Also, prepayment of up to a specific period, generally six months from the beginning of the mortgage, is not permitted by the lenders.
Property insurance
Most lenders make it mandatory to get insurance for property that’s mortgaged, at least till the mortgage repayment tenure. However, in the scenario of a home loan, property insurance is not mandatory.