Why is Home Loan Cheaper than Mortgage Loan

Loans

The first thing we need to clarify is the difference between these two loans.

  • A Mortgage Loan is the transfer of an ownership of a conditional type of an asset owned originally by the buyer or borrower to a seller or a lender.
  • A Home Loan is a loan provided to buy a house. The house itself is the asset or security against which the loan is provided.

Now this is not to be confused with LAP which is Loan Against Property. It is the loan provided against any asset for any purpose including medical treatments and funds for a wedding. On the other hand, home or mortgage loan is used only for the business of a property.

  1. Exit from mortgage loans are very difficult in case of any default.
  2. Credit risk is said to be higher when it comes to mortgage loans. It will look like the borrower is facing only acute financial stress which he is confident he will recover from, soon. This is because the lender observes that the borrower wants to buy a loan and is okay with a high interest rate.
  3. Mortgage loan is expensive as it is usually used to repay older debts or loans.
  4. Mortgage loans and LAP are expensive or highly priced as it is highly used everywhere as a loan product by non-professionals and self-employed professionals.
  5. No tax benefits are provided for salaried employees.
  6. In case of gold loans, you get more money. The interest rate of mortgage loan is higher for short durations when compared to home loans. The mortgage loan amount can be raised up to 60% of market value of property, and then you will get a higher amount than the gold loan.
  7. If default occurs in gold loan, you would lose only gold which is a smaller loss than losing of home when it comes to mortgage loan.

Home loans and personal loan rates have dropped to below 3% in the last five years showing the price difference dramatically.

Now, borrowers prefer home loans than mortgage loans not just because the former is cheaper but also because of the risk of banks taking away their assets if they do default. If mortgage loan is still the way to go for you, look at the plethora of options you have. For a fixed monthly payment and a fixed period for repayment of loan, home mortgage loan can be chosen. This is usually opted for when remodeling is the plan. For smaller projects, home equity loan is better suited as it is flexible and is a revolving credit line. It also lets you withdraw money to cover other purposes than the specific purpose. Use the help of a mortgage broker when unsure about the plan. Whichever option is opted for, you are still at risk for your home and so you always have to be careful when it comes to mortgage loans. Think of your budget,the repayments and other particular risks and constraints. Once this has been decided, you can begin the work.

Home loans are thus cheaper than mortgage loans and hence more preferred. Keeping these in mind, make the right decision for a secure feature.

Alice

Alice Porter is an avid writer who specialises in property management in Manchester is passionate about sharing her knowledge to first time buyers and new business owners.

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