Home buying can be a life changing purchase for anybody. And when you’re dealing with a major purchase like this, one needs to have a clear idea about the terminology. Most of the buyers confuse the terms "mortgage" with "home loan". Most of us are used to calling our home loan a mortgage, but that isn't an accurate definition of the term.
What Is Mortgage Loan?
A mortgage is a loan to finance the purchase of your house. It a kind of security instrument that you as a buyer give to the lender. Mortgage is a legal document that secures the lender's interests in your house. It is a kind of debt instrument that gives conditional ownership of your property. A mortgage on your home gives you the choice of not having to pay off the entire amount of property at one go. Most first–time home buyers do not have instant cash available to buy a house. Thus, obtaining a mortgage to acquire a loan is the right option. You can also obtain a loan against property, disbursed against the mortgage of your property, if you need funds to acquire a new property or for anything else.
What Is A Home Loan?
A home loan is the debt you incur when you are about to buy a house. In banking terms, a loan is sum of amount approved for a borrower. This money that’s borrowed has to be repaid to the lender/bank in regular installments. The bank or the lenders usually charge the borrower with interest, in addition to the due amount. A bank approves a loan followed by a legal procedure and a contract stating that both parties agree to this deal. There’s no notable difference between mortgage loan and a home loan. You'll find that the application process for both loans is similar. Both of them use your home as collateral. Just like a mortgage, if you default payment on your home loan, you can lose your home.
So what’s the difference then when both ways individuals are obliged to mortgage their property?
In mortgage, the property serves as collateral whereas a home loan may or may not be secured. Unlike a home loan, where you actually receive money to purchase a house, a mortgage is a legal document that you will offer to your lender in exchange for a legal claim of your property. It’s like a security instrument agreeing to make regular payment with interest against your property.
A home loan is provided for the restricted end use of any property. The payment has to be made to either the seller or the builder of the property. On the other hand, a mortgage loan is offered for an open end use. It is given against the lien of a property. The lien is removed when the debt is completely paid off. In both cases, the property is mortgaged to the lender.
How Are The Two Different From Loan against Property?
There is a striking difference here - Home Loan or Mortgage loan is taken only for the purpose of purchasing a property. Mortgage loans or home loans usually fund home purchases whereas a Loan against Property can be taken for any purpose.