Loan vs Mortgage

Difference Between Loan vs Mortgage

Loan and mortgage are often used interchangeably in the banking world. As to a layman, it is one, and the same thing, and typically people find both these similar to that of any lending deal which they come across. In this Loan vs mortgage article, we will try and understand the key differences between a mortgage and a loan and how these two are different from each other in their nature, type, and working.

Head To Head Comparison Between Loan vs Mortgage (Infographics)

Below is the top 7 difference between Loan vs Mortgage

Key Differences between Loan vs Mortgage

Both Loans vs Mortgage are popular choices in the market; let us discuss some of the major Difference Between Loan vs Mortgage.

• A loan is like a relationship between the lender and the borrower. The lender is also known as a creditor, and the borrower is called a debtor. The money which has been given to the borrower is known as a loan, and the borrower becomes the debtor of the bank. On the other hand, a mortgage is largely related to housing loans where the property is being kept as collateral, and the owner of the property raises money to construct the house, or the property is known as a mortgage loan are secured loans as they are backed by certain collateral.
• Under mortgage loans, the loan is secured, and the probability of default is comparatively low when compared with other loans as the loan to value ratio which is a crucial criterion in mortgage loans is low the higher the loan to value ratio the higher is the risk of the lender. Mortgage loans are generally has a property value of two times which is set as an industry benchmark. Mortgage loans generally have a fixed repayment schedule and have a low risk of default when compared to other loans and advances.
• The major difference between a Loan vs Mortgage is that a mortgage loan is always secure, and it has compulsory payments due. In contrast, on the other hand, loans are flexible in nature and are often unsecured in nature.
• Mortgage loans are procured by keeping a property that is worth a higher in amount than the loan that the individual is looking to raise for his or her needs. In the case of mortgage loans if there is any default in the principal or interest payments the banks or the financial institution can take away the property from you and will sell it in the open market to recover the amount of money left to be paid or will try to sell the property at its fair value
• Mortgage loans are generally available in the market for a longer tenure which is usually more than a decade or can stretch up to 15 years. Also, as these loans are secured fully by the property, they bear generally a lower rate of interest when compared to a personal loan or an unsecured loan. On the other hand, normal loans have a shorter tenure and can be flexible in nature, also in some cases if an individual takes an unsecured loan or any loan from a relative or a friend then in that case the principal amount needs to be repaid whereas, the interest payment is foregone in such cases. Loans nature and tenure depend on case to case basis, which also depends on the end objective of the loan or where the funds will be deployed.

Loan vs Mortgage Comparison Table

Below is the 7 topmost comparison between Loan vs Mortgage

Conclusion

Lending is what is driving the banking industry, and that is how banks help the economy and the government in the creation of assets and increasing the money supply in the economy within turn increases the purchasing power of the customers. However, individuals availing loans from banks and financial institutions should be careful in the repayment of the same as it affects the credit score of the borrower and also his creditworthiness.

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