We all are familiar with the concept of home loan. However, not all of us are used to the concept of mortgage loan and what all it covers! There is a very thin line between home loan and mortgage loan, and thus, the confusion prevails! Let us unfold the concepts of mortgage and home loans.
It is the type of loan where the applicant has to provide property or some other real estate piece as a collateral to acquire the loan amount. It is nothing but a lien instrument which is provided to the lender by the buyer. Due to the collateral provided to avail loan, the lender provides conditional ownership of the property to the buyer. The ownership of the property cannot be transferred to anyone else unless and until the loan is cleared. However, if the borrower fails to repay the loan, the lender has the right to sell the property which was kept as collateral to recover the debt. This process is called foreclosure.
Fixed rate mortgage: This is the simplest form of mortgage loan as the borrower is expected to pay the same amount per month (EMI) throughout the tenure of the loan, unless though the borrower wants to pay more than is required, to complete the loan faster.
Adjustable mortgage: In this case, the interest rate changes, and eventually so does the monthly payouts. If one is able to afford the unpredictability of the monthly payments, they may out for this option.
It is the type of loan where the borrower avails loan for purchasing any house, flat or plot. The main difference between home loan and mortgage loan is that home loan has a pre-set purpose whereas money acquired through mortgage loan can be utilized for any purpose.
Depending on the borrower’s income, property value, credit score, as well as credit history, the final loan amount is calculated. One can check the amount they have to repay using a home loan calculator. There is a whole lot of documentation needed for acquiring a home loan from banks or financial institutions. Similar to mortgage loans, home loans are also divided into two types – fixed rate loans and floating rate loans.
The interest rate of home loans is on a lower side as compared to that of the mortgage loans. In case of the home loans, the money that is disbursed by the banks are directly credited to the seller’s account whereas in case of mortgage loans, the amount is credited to the borrower’s account.
- One can avail tax benefit when availing a home loan, however, no tax benefit is available for mortgage loans.
- Loan amount is disbursed to the seller account in case of home loans whereas the loan amount is credited to the borrower in case of mortgage loans.
- Home loan is provided for fixed end use of purchasing a property whereas mortgage loans are open ended loans that can be used for any purpose.
In either case, the process of loan application is more or less the same but keep a close eye on the interest rate. It is better to define the purpose of the loan before applying for same! It will help you stay away from trouble and misuse of funds.