What’s the difference between Home Finance and Home Mortgage

Banks offer various types of loan such as car loan, personal loan, home loan, plot loan and other. Sometimes many people have a doubt before applying for a home loan that is “How is home finance different from home mortgage?”

Home finance includes different financial products to help people buy, renovate, or build homes. It covers home loans, home improvement loans, and construction loans—basically, all money services related to housing.

Home finance aims to give people the money they need to reach their housing goals. Whether you're buying a new home, fixing up an old one, or building from scratch, these options are made to help.

What are the types of Home Finance?

1. Home Loans: These loans are for buying a new or resale home. Banks lend money to you and you need to pay in EMI.
2. Home Improvement Loans: These loans are for fixing up or making an existing home better. You can use them for repairs, upgrades, or adding new things to the property.
3. Home Construction Loans: These loans are for building a new home. They pay for materials, labor, and other building costs.

How Home Finance Works?

To get home finance, you go to banks or financial companies that offer it. The process usually involves:

1. Application: Submitting an application form along with required documents such as identity proof, income proof, and property documents.
2. Verification: The lender verifies the submitted documents and evaluates the applicant's creditworthiness.
3. Approval: If the application meets the lender's criteria, the loan is approved, and the applicant receives the funds.
4. Repayment: The borrower repays the loan in monthly installments over a specified tenure, which includes the principal amount and interest.

Key Features of Home Finance

• Flexible Tenure: Home finance options come with flexible repayment tenures, typically ranging from 10 to 30 years.

• Competitive Interest Rates: Interest rates vary based on the type of loan, the borrower's credit profile, and market conditions.

• Tax Benefits: Borrowers can avail of tax benefits on the principal and interest components of the loan under sections 80C and 24(b) of the Income Tax Act, 1961.

Understanding Home Mortgage

A home mortgage is a loan where you use your property as collateral. The lender holds a lien on the property until you pay back the loan. If you can't pay, the lender can take and sell the property to get their money back. The best example is Loan Against Property Loan where you use your property as a collateral to get a loan.

Types of Home Mortgages

1. Fixed-Rate Mortgage: The interest rate remains constant throughout the loan tenure, resulting in stable monthly payments.
2. Adjustable-Rate Mortgage (ARM): The interest rate is initially fixed for a specific period, after which it fluctuates based on market conditions.
3. Interest-Only Mortgage: The borrower pays only the interest for a specific period, after which they start paying both the principal and interest.
4. Reverse Mortgage: Available to senior citizens, this mortgage allows homeowners to convert part of their home equity into cash without selling the property.

How Home Mortgages Work

The process of obtaining a home mortgage involves several steps:

1. Pre-Approval: The borrower applies for a pre-approval, which gives an estimate of the loan amount they are eligible for based on their financial profile.
2. Property Search: With the pre-approval in hand, the borrower searches for a suitable property within their budget.
3. Application and Documentation: Once a property is selected, the borrower submits a formal loan application along with necessary documents.
4. Property Appraisal: The lender conducts an appraisal to determine the property's market value.
5. Loan Approval: If the property appraisal and borrower’s profile meet the lender's criteria, the loan is approved.
6. Closing: The borrower signs the loan agreement, and the funds are disbursed to the seller. The borrower starts making monthly mortgage payments.

Key Features of Home Mortgages

• Collateral: The property serves as collateral, reducing the lender's risk.

• Long Tenure: Home mortgages typically have longer tenures, often up to 30 years.

• Lower Interest Rates: Due to the secured nature of the loan, interest rates are generally lower compared to unsecured loans.

• Tax Benefits: Borrowers can avail of tax deductions on interest payments under section 24(b) of the Income Tax Act, 1961.

Differences Between Home Finance and Home Mortgage

1.Scope and Definition

Home finance covers different money services for housing, like home loans and improvements. Home mortgage is when your property secures the loan for example: Loan against property

2.Purpose

Home finance gives money for housing needs like buying, fixing, or building homes. A home mortgage is for buying a home with the property as security for the loan.

3.Collateral

Home improvement and construction loans for homes sometimes don't need collateral. A home mortgage always needs collateral, using the property as security for the loan.

4.Types

Home finance offers many loan choices for various needs. Home mortgages are more specific, focusing on long-term funding for buying homes, like fixed-rate, adjustable-rate, interest-only, and reverse mortgages.

5.Interest Rates

Interest rates for home loans can change a lot based on the loan type, your credit, and market conditions. Home mortgages, which use your property as security, usually have lower rates than loans without collateral.

6.Tax Benefits

Home finance and home mortgages in India give tax benefits under the Income Tax Act, but they have different rules. Home loans and mortgages let you deduct interest under section 24(b), and repayments on home loans are deductible under section 80C.

7.Repayment Structure

Home finance options such as home loans and home mortgages usually require monthly payments that cover both the loan principal and interest. Different types of home finance, like home improvement loans, may have varied repayment structures depending on their specific terms and conditions.

Conclusion

It's important to understand the distinctions between home finance and home mortgages to make informed choices when buying or enhancing a home. Home finance covers a range of loans for different housing needs, while a home mortgage uses the property as collateral for long-term financing.

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Frequently Asked Questions (FAQs)

1. What is the main difference between home finance and home mortgage?

• Home finance is a broad term covering various financial products for housing needs, while a home mortgage is a specific type of loan secured by the property.

2. Can I get tax benefits on home finance and home mortgage?

• Yes, both home finance and home mortgages offer tax benefits under the Indian Income Tax Act, though the specific sections and benefits may differ.

3. Do all types of home finance require collateral?

• No, not all types of home finance require collateral. For example, home improvement loans may not require collateral, whereas home mortgages always do.

4. Are interest rates lower for home finance or home mortgage?

• Interest rates are generally lower for home mortgages due to their secured nature, whereas home finance options can have varying interest rates depending on the loan type and borrower’s profile.