As a loan Borrower, you need to understand the differences between a home loan and a mortgage to prevent the misconception that may lead to problems. Borrowers can avail of many different types of loans. While loans such as auto loans and personal loans are distinct in their use, borrowers often get confused between a home loan and a mortgage loan. Many feel that they are the same: a misconception that may lead to problems down the line.
The difference between a home loan and a mortgage is:
- The mortgage bond is registered at the Deeds Office as security to the loan.
- Your home loan is the money the bank is lending to you. Once the bond is registered at the Deeds Office, the bank will pay out the loan amount, usually into the conveyancing attorney’s trust account.
Some of the points to note on the difference between a home loan and a mortgage loan include:
Their Use
- A home loan can only be used to finance the acquisition or construction of a home,
- A mortgage loan can be utilised to meet a variety of financial needs, including education, wedding, and medical emergencies.
Loan-to-value ratio
- A home loan can cover 80-90% of a property’s current market value, whereas
- A mortgage loan can only cover 75% of a property’s value.
Their Interest rate
- Another difference between mortgage loans and home loans is that home loans have lower interest rates than mortgage loans. IDFC FIRST Bank offers mortgage loans starting from 7.5%, but home loans begin from 6.5%.
Based on Processing fees
- A home loan’s processing charge varies from 0.2-1% of the loan amount. However, mortgage loan processing fees are still higher. Lenders charge a processing fee of roughly 1.5% of the loan amount.
Loan repayment period
A home loan offers a long payback tenure, which can sometimes go up to 30 years. Mortgage loans typically have a payback period of up to 15 years.