Mortgage Loan Vs Home Loan – What is the Difference?

May 1st, 2023


When a borrower takes money from the bank to build or buy a house, it is known as a home loan. Borrowers can also take loans to buy land or renovate the existing house. Home loan is released when the entire loan is repaid in the form of EMIs. Usually, the tenure of home loan is up to 30 years.

When a borrower takes money from bank for any purpose, against a property that the borrower owns, it is known as mortgage loan – the tenure of which is up to 15 years.

Understand the Difference Between Home Loan And Loan Against Property

If you are planning to buy a home and need to borrow money, you should apply for a home loan. If you are planning to raise finances against a real estate property you already own, you can take a mortgage loan. Knowing the difference between home loan and mortgage loan can help you choose the one that best suits your needs and financial situation.

Mortgage Loans

A mortgage loan is a type of loan secured by the property, which serves as the collateral for the loan. Until it is paid off in full, the borrower makes regular payments over a set period of time, usually up to 15 years.

Types of Mortgage Loans

There are several types of mortgage loans, including:

  • Simple Mortgage: The borrower mortgages the immovable asset personally to avail a loan. The lender has the right to sell this in case of default during the repayment.
  • English Mortgage: It establishes the personal liability on the borrower, and the mortgaged property is transferred to the lender till successful loan repayment.
  • Mortgage by Title Deed Deposit: The borrower deposits the title deed of the property to be mortgaged with the lender, to get the loan against it.
  • Mortgage by Conditional Sale: The mortgagor sells property with terms that become effective in case of a default. The terms turn null after successful repayment.
  • Commercial Mortgage: It is commonly opted by entrepreneurs and businessmen for buying commercial properties such as office space, a complex, or any shop.

Benefits and Drawbacks of Mortgage Loans

By understanding these advantages and disadvantages, the difference between mortgage and home loan becomes clearer.


  • It allows individuals to use the loaned amount for any purpose, for example a wedding in the family, higher education, surgeries or medical expenditure in case of emergencies
  • The amount disbursed by the bank / financial institution can be very high, depending on the value of the property mortgaged
  • Mortgage loans are quite helpful if you already own real estate (such as apartment or plot of land), and are in urgent need of money due to unforeseen circumstances


  • Interest rates and processing fees are higher than those of home loans
  • Loan-to-Value ratio is typically lower than that of a home loan
  • Defaulting on a mortgage loan can result in foreclosure, and hence loss of the property

Eligibility Criteria for Mortgage Loans

To be eligible for a mortgage loan, the borrower typically needs to meet certain criteria, including:

  • Good credit score
  • Stable history of income or salary
  • Clear title documents of the property to be mortgaged

Process of Applying for a Mortgage Loan

  1. Pre-approval: The lender reviews the borrower’s credit score, income, and the value of the property to determine how much amount can be borrowed
  2. Lender Finalisation: Borrowers typically seek quotes from multiple lenders, and finalise the one with the most favourable terms
  3. Loan Application: The borrower submits a loan application to the lender, including information about the property, income, and other financial details
  4. Loan Processing: The lender reviews the application and may request additional documentation, such as tax returns or bank statements
  5. Underwriting: The lender evaluates the borrower’s creditworthiness and the property’s value to take a final decision on approving the loan
  6. Closing: The borrower signs the loan documents and pays processing / closing costs, and the lender disburses the loan funds

Home Loans

If a borrower takes money from the bank to buy a flat / villa / row house, or if they want to build a new house, it is termed as a home loan. Borrowers can also take home loans to renovate the existing house or to buy land. The house or plot of land serves as the collateral for home loan. In case the borrower is not able to repay the loan, the lender holds the right to liquidate / sell the house and recover the loan amount. The loan-to-value ratio or the percentage of amount that can be financed via a home loan is higher, at around 90%.

Must Read: Home Loan Down Payment – The Ultimate Guide!

Types of Home Loans

  • Home Construction Loan: If you have a plot of land and you need financing to construct a house on that land, you can avail of a home construction loan
  • Home Improvement Loan: It provides financing for repairing & renovating the house, if major upgrades are necessary – for example painting the exteriors or interiors, waterproofing, upgrading the electrical system.
  • Home Extension Loan: If you own a house and would like to add a floor or a room for your growing family, then a home extension loan is the best option
  • Composite Home Loan: This provides the financing for purchasing the land where you would want to construct the house, within a single loan.

Higher loan-to-value (LTV) ratio is one of the key differences between home loan and mortgage loan. Also, a home loan comes with an option of a fixed interest rate and a floating interest rate. The tenure of a home loan extends up to 30 years. Usually, the processing fee on home loans is 0.5-1% of the loan amount.

Must Read: What is a Home Loan & Types of Home Loan in India

Benefits of taking a Home Loan

Tax Benefits The foremost benefit of a home loan is the income tax deduction you can claim, which is up to INR 1.5 lacs on principal repayments
Lower Interest Rate The interest rate is more favourable to the borrower for home loan vs mortgage loan

You may get a top-up on existing home loan at lower rate than a personal loan

Long Repayment Tenure Home loans come with longer repayment tenure, i.e. around 25-30 years

Spreading the loan amount and interest applicable for a longer tenure will reduce the EMI burden

Balance Transfer Facility You can transfer the home loan from one lender to another, for various reasons such as customer service experience, interest rate, repayment terms, service charges, and more

Eligibility Criteria for Home Loans

While a credit score of 750 & above is preferred, a few other important factors that banks consider are:

  • Type of employment
  • Annual income / business turnover
  • Age
  • Collateral Security
  • Margin Requirements
  • Stability, assets, liabilities, and continuity of occupation
  • Residency status


Salaried Customers

Businessmen/Non-Salaried Professional

Identity and Residence Proof

Identity and Residence Proof

Identity and Residence Proof

Application form with photographs

Application form with photographs

Application form with photographs

Processing fee cheque

Processing fee cheque

Processing fee cheque

Last 6 months’ bank statements

Last 6 months’ bank statements

Last 6 months’ bank statements

Title documents of agricultural land depicting landholding

Latest Salary Slip

Certificate of educational qualifications, and Proof of business

Title documents of agricultural land depicting landholding

Form 16

Business profile and previous 3 years’ income tax returns (self and business)

Statements of previous 2 years of loans availed

Previous 3 years profit-loss and balance sheet

Must Read: Home Loan Pre-approval: Simplifying the Homebuying Process!

Process of Applying for a Home Loan

Availing home loans has become easier than before, one can either go to the branch of the bank directly, inquire about the home loan options or else check for online application. Once you apply, the bank collects the required documents including the value of the property, CIBIL score, income and liabilities statements, and more. Pls visit – Home Loan Process to understand more about the process of applying for a home loan.

Difference Between Home Loan And Mortgage Loan (Mortgage Vs Home Loan) 

The table below shows the difference between mortgage vs home loan:

Parameters Home Loan Mortgage Loan
Purpose For buying or renovation To help with any financial expenses, without any limitations on the end-use
Interest Rate Lower than mortgage loans Around 1-3% higher than home loans
LTV Ratio Usually 85-90% of the property value 60-70% of the current market price of the property
Processing Fee 0.8 to 1.2% of the total amount of the loan 1.5% of the total amount of the loan
Tax Benefit Offered under section 80C, section 24, section 80EE, section 80EEA No benefits
Tenure Up to 30 years Up to 15 years

Factors to Consider before Choosing Between Mortgage Loans and Home Loans

There are various classifications when it comes to home loans, depending on what a borrower wants to do with these loans. Both mortgage loans and home loans are securing loans which offers top-up loan facilities. Check the following factors before making a final decision:


Home Loans

Mortgage Loans

Purpose For construction of a new home or buy a property that is ready to move in. With this loan, a borrower is at liberty to use the money as they want to. There is no restriction on how the amount can be used. It can be for personal needs, financing a new business, covering the costs of higher education, a wedding in the family, and more
LTV Ratio The loan to value ratio is higher. One can get a loan of up to 90% of the property’s market value This loan value is comparatively low than the home loan. One can get loan of up to 60-70% of the property’s market rate
Processing Fee Home loan processing fee amount ranges from 0.8 to 1.2 percent of loan value As compared to home loans, the mortgage loan processing fee is higher. It usually charge around 1.5% of the loan value.
Repayment Tenure Up to 30 years Up to 15 years

Must Read: GST Rate on Real Estate, Flat Purchase, Plot Sales

Final Thoughts

Home loans against property are secured loans which can provide the required funding for different purposes. Home loans are designed for purchasing, constructing, extending, or renovating the property or home. Mortgage loans can be for any purpose, including personal or business expenses.

Your requirement and conditions determine the type of loan you should take. By understanding the differences between these two loan types, you can make an informed decision and choose the best option that meets your needs – while also ensuring that you can comfortably manage your loan repayments over the long term.

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