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What Is the Difference Between a Home Loan and A Mortgage Loan?

Updated: Mar 21, 2022

The demand for loans has been a constant driving force behind the increasing number of loan products in the market every day. With the sheer number of loans, choosing the right product that matches your needs can often be an overwhelming task.

Moreover, many loan types are named in a manner that people tend to use synonymously. This is frequently seen for the home loan and mortgage loans. For the end customer, it becomes quite confusing to make the right selection between a home loan v/s mortgage loan.

What is A Home Loan?

A home loan is a type of loan that you need if you are looking to purchase a new residential property that may be ready to move in or under construction. The applicant is not the owner of the property, but the home loan gives him access to funds through which he can gain ownership. The amount of the loan can be used only for this purpose alone.

What Is A Mortgage Loan?

A mortgage loan is a type of loan that you can apply for if you already own a property that you can put up as security or collateral to the lender to get the funds. The financing that you get from the mortgage loan can be used to cater to any need that the applicant may have. The need can be personal, or business related.

What are the Differences Between a Home Loan and A Mortgage Loan?

Before you place your application for either of the two loan products, it is important to have a comprehensive understanding of the purpose of each loan type. Whether it is the home loan or the mortgage loan, knowing the differences between the two will help you to apply for the right financial product and align it to your needs.

Let’s take a look at some of the major points of difference in home and mortgage loans.

Purpose of the Loan: The home loan can be used by the applicant to purchase under construction or ready to move in real estate. On the other hand, a mortgage loan is a loan against an existing property that can be commercial or residential that the applicant possesses ownership of. The applicant is at liberty to use the funds of the mortgage loan to service any personal or business needs.

Loan to Value Ratio: You cannot gain 100% financing of your real estate purchase from your home loan. Although the actual percentage varies from lender to lender, the upper limit is capped at 90% of the value of the property. The mortgage loan allows the applicant to borrow up to 70% of the market value of the property.

Interest Rates: Home loans come with affordable rates of interest that start from as low as 6.5%. For mortgage loans, the rate of interest is generally 1% to 3% higher than home loans. However, the applicant has the option to choose between a fixed or a floating interest rate for both home loans and mortgage loans.

Processing Fee: Both the home loan and mortgage loan have processing fees attached to them. The processing fee hovers between 0.8% to 1.2% for home loans as opposed to a higher 1.5% for mortgage loans. Again, these figures are an average estimate only and differ from lender to lender.

Repayment Tenure: Home loans come with a longer repayment tenure. The applicant based on his repayment capacity can choose a period anywhere between 10 years to 30 years. On the other hand, the maximum repayment period on the mortgage loan is 15 years. This is where the benefits of home loans really stand out.

Can Everyone Get a Home Loan or Mortgage Loan?

Not everyone can qualify for a home or a mortgage loan. Before you put forward an application, make sure that you fulfil these general eligibility criteria:

  • You should be an Indian resident
  • You should be a minimum of 21 years and at the time of loan application a maximum of 60 years if salaried and 65 years if self-employed at the time of loan maturity
  • You should be salaried or self-employed

Salaried individuals will have to submit proof of employment with a private limited company, multinational company, listed public limited company or government service. Self-employed professionals and business owners will be required to present documentary evidence of their professional or business operations.

You can utilise the home or mortgage loan eligibility calculator available on the SMFG Grihashakti website to also help determine if you qualify for either of these loans. It also helps to gain an accurate estimate of how much loan amount you may be eligible for.

Remember that the eligibility calculator offers an estimate only. The actual loan eligibility will be determined by taking into consideration multiple factors such as the applicant’s age, type of employment, income, credit report and score, existing financial commitments, LTV and property valuation.

In Conclusion

There is no logical foundation for a debate between home loan v/s mortgage loan as both fulfil completely different financial objectives for the applicant. However, if you wish to have a more in depth understanding, you may always speak to SMFG Grihashakti’s customer service team on the toll free number 1800 102 1003 between 9.30 a.m. to 6.30 p.m., Monday to Saturday to get more information.

Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.

SMFG India Home Finance Co. Ltd. (Formerly Fullerton India Home Finance Co. Ltd.)
CIN number: U65922TN2010PLC076972

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