Mortgage Loan vs Home Loan: The Interest Rate Truth Banks Don’t Tell You

Posted by
Mortgage Loan vs Home Loan

What is Mortgage Loan and Home Loan?

Mortgage Loan :- A mortgage loan, also referred to as the “loan against property” or LAP in India, is essentially a secured credit product where the borrower mortgages the property with the lender and, in turn, receives the loan for any purpose, i.e., for business, settling debts, education, medical, or even for fulfilling other requirements. The lender will then have a charge on the asset, and in case of default, will have the right to the asset for the sake of the loan. The interest rates on mortgage loans are governed on the basis of the creditworthiness of the borrower, loan tenure, and the kind of property.

Home Loan :- Home loan is a type of mortgage financing, and the only purpose of the mortgage is the acquisition, construction, extension, or improvement of residential property. Since the purpose of the loan is clear, the conditions of a home loan are advantageous, offering a longer tenure, better interest rates, and regulatory and tax benefits over a mortgage loan. Home loans are also advantageous in terms of a lower rate of interest and a tax benefit for the borrower through the Income Tax Act for acquiring or constructing the property.

Different Between Mortgage Loan and Home Loan

Mortgage Loan 

  • Primary purpose - Any purpose (business, personal, investment).
  • Typical interest - Higher (purpose-flexible → higher risk pricing).
  • Tenure - Usually up to 15–20 years (varies).
  • LTV (advance) - LTV typically lower (50–70%).
  • Tax treatment - Limited tax benefit unless loan used for house acquisition.
  • Documentation & conditions - More stringent valuation + possible cash-flow proof for business use.

Home Loan

  • Primary purpose - Purchase/construct/repair residential property.
  • Typical interest - Lower (competitive housing rates).
  • Tenure - Up to 25–30 years typical.
  • LTV (advance) - Higher LTV (often 80–90% for primary purchase).
  • Tax treatment - Interest/principal may be tax-deductible for purchase/construct.
  • Documentation & conditions - Purpose-specific verification required.
Mortgage Loan vs Home Loan

Current Mortgage and Home Interest Rate : What Borrowers are expecting today from RBI?

Also, monetary policy is relatively stable, and the Reserve Bank’s policy affects retail lending. The RBI’s repo rate is currently at 5.25%, which is helping to stabilize headline costs.

Current Home loan rates  -

Market quotes of large banks and HFCs indicate very competitive rates in the low to mid-7% bracket for high credit borrowers to begin with; several nationalized banks and large HFCs are launching marketing offers in the 7.10 to 7.25 percent range as an entry-level floating rates offer.

Current Mortgage (LAP) Rates  -

Generally, mortgage or loan against property products start at a higher rate, e.g., in the range of 8.4% - 9.5% for well-profiled customers in good HFCs and banks, and even higher in good NBFCs. Spread could be in the range of 100 - 250 bps.

Current Lowest Interest Rates -

For the best and most comparable borrowers, the lowest home loan interest rates are around 7.1% p.a.; the most competitive LAP offers are from around 8.45% - 9.00% p.a. (on eligibility).

How to Select Best Mortgage/Home loan lenders in India

The Selection of lender should be Depend on total cost and service, not just on interest rates. 
  • Effective interest + all fees (processing, legal, valuation).
  • Transparency (such as rate reset triggers, prepayment/fore
  • Turnaround time and digital processing capability.
  • Branch presence and valuation expertise locally.
  • Post-disbursal support (insurance options, loan top-up, balance transfer).
Top market participants to consider
  • State Bank of India - broad reach, competitive standard offers.
  • HDFC Bank - fast digital processing, competitive housing products.
  • ICICI Bank - Product variety and balance transfer options.
  • Axis Bank - Flexible Pricing for Salaried Professionals
  • Bajaj Housing Finance - home loans and LAP aggressive pricing.
  • PNB Housing Finance - housing finance products specialist.
  • LIC Housing Finance - A reliable HFC with long tenure options.
  • Bank of India - Competitive public sector offers for eligible borrowers. 

Best Practice to Apply for Mortgage Loan and Home Loan to get Best Price

  • Pre-Check Credit Scores: Target for a score of > 750 for the best offers. Spreads increase substantially for scores below.
  • Documents Required ID proof, address proof, and income proof. Keep your documents ready for fast processing.
  • Effective Cost Comparison: Rather than this, apply the APR concept and add fees like processing fees and valuation fees to the rate of interest.
  • Negotiate or balance transfer: In addition, if your credit score improves, you may have the opportunity of refinancing.
  • The options most appropriate to you: Floating if expecting substantial rate reductions, long tenure; Fixed or Hybrid if wanting certainty, short term.
  • What are the rules for valuation of LTV percentage? For LAP, are the percentage of advance and the method of valuation transparent?
  • Lock terms: It is essential to lock terms such as rate, reset, processing fees, prepayment, and disbursal in the sanction letters.

My Opinion - 

Mortgage and home loans are long-term financial commitments.Always Read Proper Document to avoid mistake otherwise it could create burden on you. Interest sometime depend on your cibil score if you have a good cibil score you can get better deal.Always discuss with your financial advisor.
This is AN INFORMATION on Mortgage Loan and Home Loan. Consult  your advisor before taking any step.