Home Loan Vs Mortgage Loan: Which Is Cheaper

Why Is Home Loan Cheaper Than Mortgage Loan?

Home Loan Vs Mortgage Loan: Which Is Cheaper


Is a home loan cheaper than a mortgage loan and what is the difference between them? Yes, it is. Since the interest rate for a home loan is lesser than a mortgage loan, a home loan is more affordable than mortgage. 


Before you jump into the home loan market, it’s important to familarise yourself with a few banking jargons. A case in point is mortgage and home loan.

Mortgage is a kind of security instrument that you as a buyer give to the lender. This security gives conditional ownership on the asset to the lender, in case you default. The most common home mortgage is the loan against property (LAP), which is the funding given against the borrower’s property. The loan is provided as a percentage of the asset’s market value, that usually ranges from 40 per cent to 60 per cent.

Housing Sector Falls Under Priority Sector Lending

Home loan, on the other hand, is the debt that you incur when you are about to buy a house. The house stands as a security against which you avail of the home loan. The lender creates a lien on the house till the time you clear the debt.

The striking difference between the three, though, is that the home loan or the mortgage loan is procured only for the purpose of purchasing a property whereas LAP can be taken for any sundry financial needs such as raising capital for business, to fund marriage, medical treatment or higher education, etc. The LAP can be taken against the self-occupied or a let-out property.

Read about:   Umpqua Reviews Quarterly and Annual Outcomes

Why mortgage loan is expensive than home loan?

  • Most banks extend mortgage loans, which is mostly loan against property, for personal purposes.
  • Mortgage loan is often obtained for the purpose of repaying the existing loan/debt.
  • The credit risk involved in mortgage loans is higher than home loans. The lender presumes that a customer willing to buy a loan at a higher interest rate is facing acute financial stress.
  • Loan against property/mortgage loan is the most commonly used loan product for self-employed professionals and non-professionals, thus, strategised to be highly priced.
  • In case of defaults, the exit of mortgage loans is not easy for lenders.
  • The average LAP ticket size is more than that of a home loan. For a property worth Rs 1 crore, the borrower can raise as much as Rs 60 lakh i.e. if the lender agrees to fund 60 per cent of the market value of the property.
  • The mortgage loan is acquired against the property which the borrower already has while a home loan is taken to build an asset or a security, which serves the bank’s purpose of Housing for All.
  • A home loan up to Rs 28 lakh falls within the purview of Priority Sector Lending (PSL) but LAP does not fall under this category.

Why borrowers shy away from mortgage loans?

The prime reason why mortgage loan is not popular with the borrowers is that they do not want to take the risk of banks attaching their assets, in case they default. There are also, no tax benefits for salaried employees while paying the mortgage loan, unlike in a home loan. The interest on the mortgage loan is very high even for a shorter loan duration. Although you can raise the loan amount of up to 60 per cent of the market value of the property under mortgage loan, you can get the same or even higher amount if you pledge gold. In case of gold loan, if you default, the loss of gold would be a smaller loss compared to you losing your house  if you opt for a mortgage loan.

Read about:   English to Latin Which means of mortgage

In order to raise funds for personal needs or contingencies, there are a plethora of unsecured instruments like personal loans in the market.


Last Updated: Thu Apr 25 2019

home loans





Similar articles

Unlock Your Property's Potential With Second Mortgage

Unlock Your Property’s Potential With Second Mortgage

5 Points To Consider Before Picking Your Lender

5 Points To Consider Before Picking Your Lender

Why Should You Insure Your Home Loan?

Why Should You Insure Your Home Loan?

Planning To Take A Home Loan? Five Posers For You

Planning To Take A Home Loan? Five Posers For You

About MakaanIQ

makaaniq is an initiative by makaan.com to provide information, intelligence and tools to help property seekers and real estate industry players take an informed property investment decision.makaan.com is part of elara technologies pte limited, singapore which also owns and operates proptiger.com, a digital real estate marketing and transactions services provider. news corp, a global media, book publishing and digital real estate services company, is the key investor in elara. elara’s other major investors include saif partners, accel partners and RB Investments.

These articles, the information therein and their other contents are for information purposes only. All views and/or recommendations are those of the concerned author personally and made purely for information purposes. Nothing contained in the articles should be construed as business, legal, tax, accounting, investment or other advice or as an advertisement or promotion of any project or developer or locality. Makaan.com does not offer any such advice. No warranties, guarantees, promises and/or representations of any kind, express or implied, are given as to (a) the nature, standard, quality, reliability, accuracy or otherwise of the information and views provided in (and other contents of) the articles or (b) the suitability, applicability or otherwise of such information, views, or other contents for any person’s circumstances.

Read about:   Understanding compound or rolled up curiosity

Makaan.com shall not be liable in any manner (whether in law, contract, tort, by negligence, productsliability or otherwise) for any losses, injury or damage (whether direct or indirect, special, incidental orconsequential) suffered by such person as a result of anyone applying the information (or any othercontents) in these articles or making any investment decision on the basis of such information (or anysuch contents), or otherwise. The users should exercise due caution and/or seek independent advicebefore they make any decision or take any action on the basis of such information or other contents.