What is the difference between a home loan and mortgage loan?
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Both a home loan and a mortgage loan are secured loans that are often required to buy or build a home.
So, what is the distinction between house loans and mortgage loans? This post will go over all you need to know about it.
We realize that secured loans are a sort of loan in which the lender accepts collateral against the borrowed amount in order for the lender to recover the loan amount if the borrower fails to repay the loan. However, despite the fact that both house loans and mortgage loans are secured loans, they are not the same.
Before you can comprehend the distinction between a house loan and a mortgage loan, you must first understand what each of these loans is and how they work.
Home Loan vs. Mortgage Loan
Home Loan
- A home loan is often used to finance the purchase or construction of a home. There is a constraint on how the money may be spent.
- Section 80C of the Indian Income Tax Act of 1965 provides for a tax exemption.
- Interest rates are lower when compared to mortgage loans.
- In comparison to a mortgage loan, there is a low processing cost.
- Can be obtained for terms of up to 30 years.
- The loan amount granted is up to 90% of the property's market value.
Mortgage Loan
- The loan amount obtained as a mortgage loan can be utilized to suit both personal and commercial needs such as debt consolidation, education, marriage, or even the construction of a home.
- There is no tax break available.
- Interest rates are greater than those on house loans.
- When compared to a mortgage loan, the processing charge is more.
- The maximum duration is up to 20 years, however, this might vary from lender to lender.
- Loans of up to 60% to 70% of the property's market value are available.
What exactly is a home loan?
A home loan is a loan obtained from a bank or non-bank financial institution to either buy/build a house or repair an existing property.
The loan term is generally for a considerable period of time, ranging from 15 to 30 years, and the interest rate starts at roughly 7% per month.
There is an option to choose between a fluctuating and a fixed rate of interest on the principle amount. The interest rate on the principle amount remains constant during the term of a fixed- rate home loan.
However, under a floating or variable rate home loan, the interest rate changes dependent on market conditions during the payback period.
What exactly is a mortgage loan?
A mortgage loan is a sort of secured loan in which the borrower borrows a certain amount of money by mortgaging property.
The collateral in this scenario is the property against which the loan amount is granted.
Mortgage loans are sometimes known as loans against property since they are issued against a property, which might be a residential or commercial property, or other immovable property such as land, gold, heavy machinery, a store, and so on.
The lender is the true owner of the property in the case of a loan against it until the borrower entirely repays the loan.
What Is the Difference Between a Reverse Mortgage and a Home Equity Loan?
A reverse mortgage is a loan in which the homeowner borrows against the value of his or her house and gets a lump sum amount as fixed credit or a line of credit.
In this case, the homeowner is not required to make any loan payments. A reverse mortgage is perfect for older persons in India who own or live in their own house. If they do not have enough money to maintain themselves, they might apply for this loan.
The lender will make payments to the borrower on the mortgage on his or her home.
A home equity loan, on the other hand, is a sort of consumer debt that allows a homeowner to borrow against the equity in his or her property.
The authorized loan amount is decided by the difference between the current market value of the house and the mortgage debt owing. In this case, the equity in the residence acts as security for the financial institution, with a predetermined payback plan.
Thus, the primary distinction between a reverse mortgage and a home equity loan is that the former does not need a repayment. In the event of a home equity loan, however, you must repay the loan amount to the bank.
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