Considering the uncertain nature of life, there may come a time when you find yourself in financial hardship. Such an urgent need for funds requires sound decision making through a well-informed approach. Apparently, one of the most valuable assets that can be put to use to borrow money is a house. There are two loan options offered by the banks against mortgage of a residential property, namely Mortgage Loan and Home Equity Loan. Here is a detailed comparison of these loan schemes which will help you select the best one as per your need.
| Category | Mortgage Loan | Home Equity Loan |
| Definition | A mortgage loan is a type of secured loan offered by banks and Housing Finance Companies (HFCs) against a commercial or residential property owned by the borrower. | A home equity loan, also known as a second mortgage loan, allows homeowners to borrow against the equity in their property. This loan is typically offered on a fully constructed property with clear title. |
| How is Loan Amount decided? | The loan amount available under a mortgage loan scheme majorly depends on the current market value of the property. | The loan amount available under this scheme is based on the difference between the current market value of the property and the owner’s mortgage balance due. |
| Loan Amount | Up to Rs.10 crore or Up to 80% of the property value |
Up to 60% of the Net value (Net value = current market value of the property minus the outstanding loan amount) |
| Loan Tenure | Up to 15 years | Up to 15 years |
| Rate of Interest | Lower than a home equity loan | Lower than a personal loan |
| Type of Interest | Floating (in most cases) | Fixed (in most cases) |
| Processing Time | Up to 10 days (subject to documentation clearance and other verification) | 2 to 4 weeks (subject to documentation clearance and other verification) |
| Prepayment Charges | No prepayment charges for floating rates | Varies from one lender to another |
| Features & Benefits | ● Available to both salaried and self-employed individuals ● Lower interest rate ● Attractive tax benefits ● High loan amount availability ● Faster loan processing and Speedy approval ● Freedom to use the loan amount for any purpose ● Can be availed against a residential/commercial property or a plot/land owned by the borrower |
● Available to individuals with low credit score ● Higher loan amount on offer than a personal loan ● Freedom to use the loan amount for any purpose ● Flexible repayment tenure ● Affordable rate of interest ● Can be availed against a residential or non-residential property |
| Loan Types offered | ● Regular mortgage loan (Term loan): allows the borrower to avail a large amount at a floating interest rate ● Overdraft facility: allows the borrower to deposit surplus money in the account for as short as a few days and enjoy reduced interest liability ● Top-up loan: allows the existing borrower to avail extra funds after a certain time period of successful repayment |
● Fixed-rate loan: allows the borrower to avail a higher loan amount at an agreed rate of interest and repay it over a predefined tenure ● Home equity line of Credit: allows the borrower to withdraw funds as per his/her convenience, through the issued cheque book or credit card |
| How to Apply | ● Follow this link ● Fill the form by providing relevant details like the loan amount, city of the property, tenure, etc. ● Upon filling all the required details, click on the ‘Proceed’ button Soon, a representative from Paisabazaar will contact you on the provided contact number to process your application. |
Customers need to reach out to their existing lender to check availability, verify eligibility, and apply for a Home Equity Loan. Note: Customers could also consider balance transfer of their existing loan to a different lender if they find a better offer. |
Taking into account the above facts and figures, both mortgage loan and home equity loan provide a huge sum of money at a lower interest rate in a short period of time. However, a borrower must note that the loan amount offered under a mortgage loan is based on the current market value of the property which may be lesser than what is offered under a home equity loan. This is because, in case of a home equity loan, the property might be comparatively new, and therefore attracts a greater price.