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Home Loan vs. Mortgage Loan - What is the Difference?

Published on Jan 24, 2020Updated on Jan 22, 2024

Home Loan vs. Mortgage Loan - What is the Difference?

A home loan is designed specifically for financing the purchase or construction of a residential property. A mortgage loan, on the other hand, has no restriction on the usage of the loan amount. The difference between home loan and mortgage loan makes it clear that each is ideal for its own purpose.

You may need a loan for many different reasons. Given the varying circumstances, many different loan products are available today in the market. It is easy to confuse some of them with each other. One such pair that people get confused about is home loan and mortgage loan. Read on to understand the difference between a home loan and mortgage loan.

In simple terms, a home loan is a loan taken to buy or construct a new home – i.e. the property is not owned by the loan applicant. A mortgage loan, also known as a loan against property, is a loan secured by a property that the loan applicant already owns.

The question of which among the two is better is not really relevant, as they serve different purposes.

Home loan vs. Mortgage Loan

Both home loans and mortgage loans are secured advances used to cover large expenses. However, they differ significantly:


Home loan

Mortgage loan


Only for construction of a new house or purchase of a ready-to-move-in property

No restriction on how the loan amount is used. It can be used to meet both a personal requirement or a business requirement

Loan to value ratio

A loan can be availed for up to 90% of the property's market value

A loan can be availed up to 60% to 70% of the property's market value

Interest rate

Low compared to mortgage loans

Mortgage loan interest rates are generally 1 to 3 percentage points higher than home loan interest rates

Processing fee

Typically between 0.8% to 1.2% of the loan value

Typically at 1.5% of the loan value

Repayment tenor

Up to 30 years

Up to 15 years


Must Read: Personal Loan vs. Loan Against Property

Both these secured loans also offer other services like balance transfer, top-up loans, etc based on the total loan amount that you are eligible for. You should apply for one based on your financial requirements.

The documents required for mortgage loans and home loans are quite similar:

  • Latest salary slips/ proof of income
  • Bank account statements for the last 3 to 6 months
  • PAN card
  • Aadhar card
  • Proof of address
  • Documents about the property being mortgaged/ purchased
  • IT returns
  • In the case of mortgage loans, you will also need to have complete paperwork of the property that is being pledged

Quantum of Loan

Purchasing a home is typically the biggest expense you would undertake. A home loan is designed specifically for this purpose and as such allows you to take on a larger loan for the same value of security pledged compared to a mortgage loan.

Interest Rate

Home loan interest rates are lower than mortgage loan interest rates. This is because the government of India wants to make homes affordable for everyone and therefore RBI has minimized the margin requirements on home loans.

Loan Tenure

Both home loans and mortgage loans offer long tenures. The tenure for a home loan can be as long as 30 years. The tenure for a mortgage loan is typically 15 years, but many lenders offer a longer tenure of up to 20 years. These loans also allow you to make partial or full pre-payments to reduce the tenure or EMI, based on your financial conditions

Top-up Loans

Mortgage loans typically allow you to take a top-up loan over your existing loan. This is possible as you may be eligible for a much larger loan than you have initially opted for. For example, if you are eligible for a loan of up to 70% of the property's market value but have initially taken a loan for 50% of the value – you would be able to take a top-up loan for up to the remaining amount that you are eligible for. Home loans typically do not offer a top-up facility, though a few lenders may offer it based on their own assessment of your repayment capabilities.

Tax Exemption

You can claim a deduction of up to ₹1.5 lakh under Section 80C on home loan principal repayment. Further, you can also claim an exemption under Section 24 on the interest payment on your home loan. No tax benefits are available on general-purpose mortgage loans.

Must Read: 5 Things to Consider Before Applying a Loan against Property

Prepayment Charges

Regardless of the type of loan you have taken, no lender can charge a fee for prepayment in case of a floating rate of interest. If a fixed rate of interest is applied, a prepayment fee may be charged. This varies from lender to lender.

In conclusion, you should opt for a home loan if you wish to finance the purchase or construction of a residential property. A home loan cannot be used for any other purpose. Therefore, if you have a different requirement, a mortgage loan is a good option.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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