What is the Difference Between a Home Loan and a Mortgage Loan?

Understanding the Difference

We often use the terms "home loan" and "mortgage loan" interchangeably without realizing they are entirely different concepts. Here are some key facts about these two banking concepts:

Collateral

To obtain funds from the market, one is generally required to provide collateral. This is true for all types of mortgage loans. Therefore, a home loan is essentially a type of mortgage loan where the house is provided as collateral. Simultaneously, you can use your other assets as collateral to secure a loan.

Mortgage Loan

In a mortgage loan, your property acts as security. Simply put, in mortgage loans, your property is used as collateral for the loan. Most home loans in India are essentially mortgage loans, meaning if you fail to repay the loan, the bank has the right to sell your property to recover the loss.

Home Loan

Home loans have a predefined purpose and are given only for the purchase of a property. On the other hand, funds obtained through a mortgage loan can be used for other purposes as well, which is one reason why mortgage loans often come with higher interest rates.

Bank Loans

Indian banks have expanded mortgage loans, offering funds for personal use with your property as collateral.

Use of Funds

In the case of a home loan, banks directly transfer the payment to the seller’s bank account to ensure that the funds are used solely for purchasing the house. However, with a mortgage loan, borrowers have the freedom to use the funds wherever they choose. In a mortgage loan, the bank provides the money directly to the borrower.

Interest Rate Difference

Generally, the interest rate for a home loan is lower than that for a mortgage loan. For example, until June of the previous year, the State Bank of India, a major public loan provider, offered home loans at an interest rate of 9.20%. However, for loans taken against property as collateral, SBI charged interest rates ranging from 10.77% to 11.75%, depending on the loan amount.

Tax Benefits

Moreover, unlike home loans, there are no tax benefits for salaried individuals repaying mortgage loans. Home loans fall under the interest rate cap for priority sector loans, whereas mortgage loans do not offer this benefit.