Understanding the Differences Between Home Loans and Mortgage Loans
Introduction
In the world of finance, loans are as diverse as the people who avail them. But there’s one common misunderstanding that we’d like to address: the difference between home loans and mortgage loans. Many people believe these terms are interchangeable, but they are actually two distinct financial products with different purposes, features, and implications. To ensure you make informed decisions when it comes to your homeownership or financial goals, let’s break down the key differences between mortgage loans vs home loans.
Differences Between Home Loans and Mortgage Loans
Both Home Loans and Mortgage Loans are secured advances. Home Loans are generally availed for purchase / construction / renovate or extension of a residential property, while Mortgage Loans are vailed against existing properties for various financial needs in which the specific purpose is not defined (other than speculative purpose). The interest rate in Home Loans is lower as compared to mortgage loans and the maximum repayment tenure in Home Loans is 30 years while in mortgage loans it is 15 years. The maximum loan-to-value ratio for a home loan is 90%, while the mortgage loan ratio is 75%. Definitions of Home Loans and Mortgage Loans
Loan for a Home: A Home Loan is generally availed to purchase / construct / renovate or extension of the residential property.
Mortgage Loan :
A loan secured against an existing property availed for any purpose other than speculative.
Purpose and Primary Objectives: Home Loans vs Mortgage Loans
Let’s talk about the real purpose of these loans now that we’ve clarified the definitions: Loan for a Home: It is a separate fund that can only be used for the purchase, construction, renovation, or extension of a residential unit, as specified in the terms and conditions. The goal of home loans is to either assist you in becoming a homeowner or improve your current residence. Mortgage Loan :
Think of it as your financial Swiss Army knife. Mortgage loans can cover a broader range of needs, from buying property to paying for major life events like education or medical bills etc.
Types of Properties Covered: Home Loans vs Mortgage Loans
Home Loan :
Home loans are all about residential properties, as the name suggests. They can be used to buy one, build one, fix one up, or even grab a piece of land for your future dream home.
Mortgage Loan :
Residential, Commercial and Industrial Properties are covered under Mortgage Loans.Loan Structure and How Payments Are Made
Loan for a Home: Home loans typically require longer repayment terms and are paid back in equal monthly installments (EMIs). Due to longer tenure and lower ROI, EMI is generally less as compared to Mortgage Loans for the same quantum of loan.
Mortgage financing: Mortgage loans usually have shorter repayment and repaid in monthly Equated monthly instalments (EMI). Due to shorter tenure and higher ROI, EMI is generally more as compared to Home Loans for the same quantum of loan.
Interest Rate Options: Fixed vs. Adjustable
Bank of Baroda offers diverse interest rates to cater to your needs.
Home Loan Interest Rates :
The interest rates in Home Loan depends on the CIBIL score of the applicants. For those with a CIBIL score of 771 or higher, the bank is currently offering the lowest interest rate on home loans.
