In India (and globally), the terms "home loan," "mortgage loan," and "loan against property" are often used interchangeably in casual conversation, but they have distinct meanings and purposes. Here’s a clear breakdown of the differences as of March 23, 2025, based on standard financial practices in India:
1. Home Loan
- Definition: A loan specifically taken to purchase or construct a residential property (e.g., flat, house, or plot + construction).
- Purpose: To fund the acquisition or building of a home for personal use or investment.
- Property Status: The loan is tied to the property being bought or built, which becomes the security (collateral) for the lender.
- Key Features:
- Interest Rates: Typically lower, starting at 8.10%-9% p.a. (e.g., SBI at 8.40%).
- Loan-to-Value (LTV): Up to 75-90% of the property’s value (e.g., ₹48 lakh loan for a ₹60 lakh house).
- Tenure: Long-term, up to 30 years.
- Tax Benefits: Eligible for deductions under Section 24 (₹2 lakh on interest) and Section 80C (₹1.5 lakh on principal) in India.
- Example: You want to buy a ₹50 lakh flat in Mumbai. You take a ₹40 lakh home loan from HDFC Bank at 8.75% for 20 years, with the flat as collateral.
- Lender Perspective: The loan is disbursed to the seller/builder, and the property is hypothecated (pledged) to the bank until repaid.
2. Mortgage Loan
- Definition: A broad term for any loan secured by real estate (residential or commercial), where the property acts as collateral. In India, it’s often used synonymously with "home loan" or "loan against property," but technically, it’s an umbrella category.
- Purpose: Can be for any purpose—buying a home (home loan), personal use, business needs, or debt consolidation—depending on the lender’s product.
- Property Status: The property (new or existing) is mortgaged to the lender, meaning they can seize it if you default.
- Key Features:
- Interest Rates: Varies widely (8%-15% p.a.), depending on the specific type (home loan rates are lower; other mortgage types may be higher).
- LTV: 50-90%, based on purpose and property type.
- Tenure: 5-30 years, depending on the loan subtype.
- Tax Benefits: Only if used for home purchase/construction (like a home loan); not applicable for other uses.
- Example: A "mortgage loan" could mean a home loan to buy a house or a loan against an existing property for business funds—it’s context-specific.
- Lender Perspective: Focuses on the property’s value and your repayment capacity; the mortgage is the legal mechanism securing the loan.
3. Loan Against Property (LAP)
- Definition: A loan taken by pledging an already-owned property (residential, commercial, or land) to raise funds for any purpose—business, education, medical expenses, or personal use.
- Purpose: General-purpose financing, not tied to buying or building a property.
- Property Status: You must own the property outright (or have significant equity); it’s mortgaged to the lender as security.
- Key Features:
- Interest Rates: Higher than home loans, typically 9%-15% p.a. (e.g., Bajaj Finance at 10-12%).
- LTV: Lower, 50-70% of the property’s market value (e.g., ₹35 lakh loan on a ₹50 lakh house).
- Tenure: Shorter, usually 5-15 years (max 20 years with some lenders).
- Tax Benefits: Not available unless the funds are used for home construction/purchase (rarely the case).
- Example: You own a ₹1 crore house in Delhi and need ₹50 lakh for your child’s education. You take a LAP from ICICI Bank at 10% for 10 years, with the house as collateral.
- Lender Perspective: Higher risk (since funds aren’t tied to the collateral’s purpose), so rates and scrutiny (e.g., income proof) are stricter.
Key Differences (Summarized)
Aspect | Home Loan | Mortgage Loan | Loan Against Property (LAP) |
|---|---|---|---|
Purpose | Buy/construct a home | Any purpose (varies by type) | Any purpose (general use) |
Property Involved | Property being purchased/constructed | Any real estate (new or existing) | Already-owned property |
Ownership | Not owned yet (acquired via loan) | Depends on loan type | Must already own the property |
Interest Rate | 8.10%-9% p.a. (lower) | 8%-15% p.a. (varies) | 9%-15% p.a. (higher) |
LTV Ratio | 75-90% | 50-90% (depends on type) | 50-70% |
Tenure | Up to 30 years | 5-30 years (varies) | 5-15 years (max 20) |
Tax Benefits | Yes (Section 24, 80C) | Only if for home purchase | No (unless for home-related use) |
Collateral | Property being financed | Any mortgaged property | Pre-owned property |
Example Use | Buying a ₹50 lakh flat | Varies (home, business, etc.) | Funding a startup with owned house |
Practical Insights
- Home Loan: Best if you’re a first-time buyer aiming to own a home with low rates and tax perks. Think SBI or HDFC for a ₹40 lakh loan at 8.5%.
- Mortgage Loan: A catch-all term—clarify with the lender. In India, banks often mean "home loan" unless specified otherwise (e.g., SBI’s “mortgage loan” might just be their home loan product).
- Loan Against Property: Ideal if you own property and need cash for non-housing needs. Rates are higher (e.g., 11% vs. 8.5%), but it’s versatile—use Bajaj or Axis for quick disbursal.
Real-World Example
- Home Loan: You buy a ₹60 lakh apartment with a ₹48 lakh loan from SBI at 8.5% for 20 years (EMI ₹41,600).
- Mortgage Loan: Could be the same SBI loan or a ₹20 lakh loan against your old house for a wedding.
- LAP: You own a ₹50 lakh house, take a ₹30 lakh LAP from ICICI at 10% for 10 years (EMI ₹39,600) to start a business.
In India, “home loan” is the go-to for buying homes, while “LAP” is distinctly for leveraging existing assets. “Mortgage loan” is more a technical term—focus on the product’s purpose to pick the right one!
Disclaimer: Loudstudy isn’t a financial adviser; consult one for tailored advice.
We appreciate your comment! You can either ask a question or review our blog. Thanks!!