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How is a Mortgage Loan Different from a Home Loan?

By IIFL Home Loans | Published On Apr 26 2024 10:54 AM 1 min read 71 views 5713 Likes
IIFL Home Loans

Terms like "mortgage loan" and "home loan" are frequently used interchangeably in real estate financing. Although they both entail taking out a loan to buy a property, there are a few key distinctions between them.

Making decisions in the complicated world of financing and homeownership requires expertise in these discrepancies. Let's examine the   difference between a home and a mortgage loan.

What is a Mortgage Loan?

In its most basic form, a mortgage loan is a loan created significantly to help purchase a property, usually a house or other land. You borrow money from a lender — typically a bank or other financial institution — to buy a home. The property acts as security for the loan, so if you don't make the required payments, the lender has the right to foreclose and take possession of the property.

Key Elements of a Mortgage Loan

Home Loan Vs Mortgage

The following are the essential elements of mortgage loans:

  • Protected by Assets: One of the distinguishing features of a mortgage loan is that it is secured by the property being bought. This gives the lender a certain amount of security.

  • Amortization: Mortgage loans usually have a set repayment schedule that spans several years. Principal and interest are both included in the payments, and an amortization procedure reduces the total overtime.

  • Down Payment Requirement: Most mortgage loans require a down payment, a portion of the property's purchase price. The borrower's creditworthiness, the kind of mortgage, and other variables can all affect the down payment amount.

  • Fixed or Variable Interest Rates: Mortgage loans can be made with fixed or variable interest rates attached. For the duration of the loan, a fixed-rate mortgage keeps the interest rate constant, giving borrowers predictability. On the other hand, an interest rate on a variable-rate mortgage might alter over time, which could affect monthly payments.

What are Home Loans?

The word "home loan" is often used as a general, all-inclusive term covering a range of loans used to buy or refinance a property. Home loans can include other forms of finance, such as personal loans or home equity lines of credit (HELOCs), which may or may not be secured by the property. Whereas, mortgage loans are defined explicitly as loans secured by real estate.

Key Features of a Home Loan

How does a home loan differ from a mortgage loan? Here are some essential elements of a home loan:

  • Diverse Financing Options: Home loans include many financing possibilities. Personal loans, home equity loans, HELOCs, and other loans that might or might not be secured by real estate can fall under this category.

  • Flexibility in Use: Home loans provide more freedom in how the borrowed money is used. Mortgage loans are mostly used to buy real estate. Property loans are used by borrowers for personal costs, debt consolidation, or property improvements.

  • Interest Rates and Terms: Depending on the lender and the type of loan, interest rates and terms for house loans can differ significantly. In contrast to conventional mortgage loans, personal loans could have higher interest rates and shorter repayment terms.

Final Thoughts

Although the terms "home loan" and "mortgage loan" are sometimes used synonymously, they refer to different financing possibilities for potential homeowners. Home loans cover a more comprehensive range of financing choices that may or may not be secured by the property. In contrast, mortgage loans are defined as loans secured by real estate, often used to purchase a property.

For borrowers hoping to negotiate the intricacies of real estate financing and to learn more about home loans at reasonable interest rates, check out IIFL Home Loans today!

FAQs

Q1. Is a mortgage referred to as a home loan?

Ans:  

With a mortgage, you give the lender the right to seize your property if you return the loan balance plus interest. Mortgage loans are used to purchase a property or to take out a loan secured by an existing residence.

Q2. Are loans for mortgages taxable?

Ans:  

Section 24 (B) of the Income Tax Act of 1961 allows salaried individuals to apply for a mortgage loan tax exemption if they use the loan money to build a new property.

Q3. What type of loan is a mortgage?

Ans:  

Loans used to purchase houses and other real estate are known as mortgages. The actual property is used as loan collateral. There are several kinds of mortgages, such as fixed-rate and adjustable-rate mortgages.

Q4. How long does a mortgage loan last?

Ans:  

15 years is the maximum tenor (180 months). As the entire principal is paid back throughout the loan, the limit will drop by a certain amount each month.

Q5. Are there any interest charges on mortgages?

Ans:  

Interest is charged on the portion of your mortgage you must pay back to your lender. Fixed-rate mortgages, where the interest rate remains constant, and adjustable-rate mortgages, where the interest rate fluctuates, are the two main categories of mortgages.

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