Personal loans and mortgage loans are the two most common types of financing accessible. Both of these loans have minimal qualifying conditions and allow you to spend the funds for whatever purpose you like. As a result, choosing between them becomes extremely difficult during difficult times. This post will highlight the differences between both of these financing options to assist you in making a selection.
Mortgage Loan vs Personal Loan: Key Differences
Personal loans and mortgage loans are vastly different, with only the flexibility of utilisation in common.
| Parameters | Mortgage Loan | Personal Loan |
| Amount | A mortgage loan against the property is available for the maximum value of Rs. 15 crores. | The majority of lenders offer a personal loan for the maximum value of Rs. 5 lakhs. |
| Repayment Tenure | A mortgage loan against real estate property is accessible for the maximum tenure of 15 years. | A personal loan is disbursed with a repayment period of five years. |
| Loan-to-Value (LTV) | Financial institutions offer this loan for the LTV ranging from 40% to 75% of the current market valuation of the property. | The concept of LTV does not apply to personal loans. |
| Type of interest rate | A mortgage loan provides you with an option to choose from the fixed and floating rates of interest. | The majority of lenders offer only a fixed rate on personal loans. |
| Processing Time | Apart from KYC and income proof, your lender also needs to verify the property-related documents. Thus, the processing time may take a bit longer. | Personal loans are approved within a few minutes, and the disbursement time is around 24 hours. |
Should I go for a personal loan or a mortgage loan?
- Assess your need:
It is crucial to examine your needs before choosing between these two financing alternatives. Mortgage loan have the potential to cover all of your minor and significant financial responsibilities. For example, if you wish to send your child abroad for higher study or enroll them in a reputable medical college, you would require between Rs 50 lakhs and Rs 1 crore. In this situation, there is no better option than a mortgage loan. Similarly, if you or a loved one has been diagnosed with a serious illness that requires a treatment budget of Rs 40 to Rs 50 lakhs, consider a mortgage loan.
Personal loans are ideal for small requirements like meeting travelling expenses, home decor, etc.
- Interest Rate:
As previously stated, mortgage loan interest rates are far lower than personal loans and other types of loans accessible. This is because mortgage loans are a type of secured finance. The lender keeps the conditional ownership of your mortgaged real estate property. It means that they have the option to auction your property to recuperate their losses even if you default on a loan. Moreover, if you have chosen a floating mortgage loan interest rate, you won’t have to pay any additional charges for loan foreclosure.
On the other hand, personal loans are collateral-free loans. Therefore, to mitigate their possible loss, the lender charges a high-interest rate. Though, defaulting on both the loans will result in a considerable decline in your credit score.
- Repayment Tenure
If you only need a small amount of money and only need it for a short period of time, personal loans are the way to go. But, if you are looking to make a large financial commitment, such as purchasing heavy equipment for your business or establishing a new factory in a new location, you will want the EMIs to be affordable. Mortgage loans help you with this by allowing you to pay back the loan over a longer period of time. Since the loan is available for a maximum of 15 years, the EMI becomes substantially cheaper regardless of how large your loan amount is.
Here is the table to assist you with this point in a better way.
| Parameters | 5 Years Repayment Term | 10 Years Repayment Term | 15 Years Repayment Term |
| Loan Amount | Rs. 15 Crores | Rs. 15 Crores | Rs. 15 Crores |
| Interest Rate | 8.5% | 8.5% | 8.5% |
| EMI | Rs. 30,77,480 | 18,59,785 | Rs. 14,77,109 |
The table illustrates that going for a longer tenure results in shorter EMIs.
- Tax Benefits
Personal loans and mortgage loans both do not offer any tax advantage. However, in some specific conditions that are listed below, you can claim tax benefits under mortgage loans.
- If you took out a home loan to cover business expenses, you are eligible for a tax benefit under section 37(1).
- If you work on a salary basis and have acquired this loan to buy a house, you can claim a tax benefit of up to Rs. 2 lakhs under section 24(B).
To Conclude:
Mortgage loans are superior to personal loans in many ways. They provide larger loans, lower interest rates, longer terms, and the option of choosing between two types of mortgage loan interest rates. However, keep in mind that if you default on your loan against property, you will lose your mortgaged property.
