When you have finally chosen to take the leap on buying your first home, you will most probably be looking to take out a loan to be able to make that big purchase, whether you are looking to buy flats in Lower Parel or any other locality. Essentially, this will eventually boil down to two options: home loans and mortgages. But you might be unsure how to distinguish these two types of loans. A home loan grants you capital with the main purpose of acquiring a home. The which you get using these funds will be held as collateral. In case of mortgages, another property will be held as collateral. These loans also do not need to be used with the sole purpose of purchasing a house. We at L&T Realty have put together a few points of difference between the two loan types.

Home Loans Vs. Mortgage Loans: Get Your Facts Right!

Differentiator 1: What are the Funds Going to Be Used For?
This is arguably the main differentiator between a home loan and a mortgage loan. The funds that you can obtain from a home loan can only be used on your home, as the name may indicate. If these funds happen to be used on other things, it can lead to a violation of agreement which may in turn result in a fine to be paid. Unlike a home loan, the funds which you obtain from a mortgage loan can actually be used without any kind of limitation or restriction.

Differentiator 2: Understand the Contrast in Interest Rates.
Another major factor that marks the difference between a home loan and a mortgage loan is the contrast of interest rates between the two. Mortgage loans tend to have much higher interest rates in comparison to home loans. In most cases, the interest rates which are offered for mortgage loans are around 1 to 3 percent higher than the interest rates offered on home loans. This mainly due to the lack of limitations which are placed on the usage of mortgage loans. This kind of free reign tends to attract much higher interest rates.

Differentiator 3: The Repayment Tenures Differ Too.
The window for repayment of the loan is another point where mortgage loans and home loans differ measurably – the repayment tenure for mortgage loans is much shorter than that of home loans. In most cases, the window for the repayment for a mortgage loan is around 15 years. On the other hand, the repayment tenure of a home loan is typically around 30 years, double the amount of time for a mortgage loan. A longer repayment tenure is usually a better case, as this gives you a lot more room to attain a larger loan and it can also be paid back in smaller installments over a longer period of time. Regardless of whether you are looking at a 2 BHK in Palm Beach Road or any other property, this is a major aspect to note before taking out a loan.

Differentiator 4: Know What Ratios of Loan to Value You’ll Get.
Another aspect where mortgage loans and home loans tend to show a major difference is the case of loan to value ratio. Home loans tend to be a lot more accommodating in this sense, and in most instances you can get a home loan that is up to 90 percent of the total value of the property in question. Mortgage loans are much lower, and will typically lend the loanee up to roughly 75 percent of the overall value of the property. So in this case, home loans can be a lot more useful for prospective home buyers.

To Summarise:
These are just some of the main differentiators between home loans and mortgage loans. While both of these have very similar uses, they are incredibly different when you go into further detail. Which is why it is vital for you as a potential home buyer to fully understand these intricacies before buying your dream home, whether it’s a 4 BHK in Bangalore or a home of another configuration in other locations.

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