What is the difference between a mortgage and a loan?

Understanding the differences between a loan and a mortgage is crucial for making the right financial decisions. While both involve borrowing money, their purpose, structure, and repayment terms differ. In India, knowing these differences can help individuals choose the right financial product for home purchases, business expansion, or personal expenses.

What is a loan?

A loan is a sum of money borrowed from a lender, which must be repaid with interest over a fixed period. Loans in India are broadly classified into:

• Secured loans – These require collateral, such as property, gold, or fixed deposits. If the borrower fails to repay, the lender can seize the collateral.
• Unsecured loans – These do not require collateral but usually have higher interest rates due to the increased risk to the lender.

Also Read: Home Loan: All You Need to Know – Godrej Capital

People can take loans for different reasons which could include business, education, wedding plans or medical emergencies. Financial institutions such as banks, NBFCs (Non-Banking Financial Companies), and online lending platforms are the major sources of these funds. They also come with flexible repayment periods.

What is a mortgage?

A mortgage is a type of secured loan where real estate property is used as collateral. In India, a mortgage is commonly used for:

• Buying a home – Home Loan allow individuals to purchase residential properties.
• Loan Against Property (LAP) – Existing property is used as collateral to borrow money for personal or business needs.

Unlike general loans, mortgage loans are specifically tied to property transactions. They typically have longer repayment tenures, making them ideal for substantial financial commitments.

Difference between a loan and a mortgage

There are marked differences between a loan and a mortgage. They are as follows:

Home loan vs. mortgage loan in India

In India, home loans vs. mortgage loans serve different financial needs.

• Home Loan – A loan taken to buy or construct a house. The property serves as collateral, and borrowers can avail of tax benefits under Section 80C and Section 24(b) of the Income Tax Act.
• Mortgage loan (Loan Against Property – LAP) – A loan where an existing property is used as collateral. The funds can be used for business, education, or emergencies. Unlike home loans, mortgage loans do not offer tax benefits unless used for business purposes.

Also Read: What is Loan Against Property? - Features, Eligibility, Documents, and more.

Home loan vs. mortgage loan interest rate

Another area of difference lies in home loan vs. mortgage loan interest rates. They are as follows:

• Home loans typically have lower interest rates as they are used for property purchases, making them less risky for lenders.
• Mortgage loans have slightly higher interest rates as they offer more flexibility in fund usage, increasing risk for lenders.
• The interest rate for home loans in India currently ranges between 8.3% and 9.5% p.a., while mortgage loans may have rates starting from 9% to 12%, depending on the borrower’s credit score, lender policies, and tenure. (Source: RBI, 2025)

Difference between a loan and a mortgage

The terms " loan" and "mortgage" are often confused, but they have distinct meanings:

• Loan – A general term for various loan products offered by financial institutions. These include personal loans, education loans, and business loans. They may or may not require collateral.
• Mortgage – A specific type of loan secured by real estate property. It is always backed by collateral, making it different from other types of bank loans.

The Bottom Line

Choosing between a loan and a mortgage depends on the purpose of borrowing. If you need funds for personal or business use, a general loan may be the right option. However, if you are purchasing a home or need to leverage an existing property for funds, a mortgage loan is the better choice.

Looking for the right loan option to meet your financial goals? Apply for a Home Loan today itself and get the money you want, tailored to your needs.

Moreover, an EMI calculator can help you achieve clarity on your EMIs by telling you the exact amount you need to pay as your EMIs per month.

FAQs

Q.1. What is better, a loan or a mortgage?

A. The main difference one needs to consider here is interest rates. Mortgage lenders carry more risk for the lenders, which is why interest rates are slightly higher for mortgages. On the other hand, interest rates for loans vary based on whether they are secured or unsecured.

Q.2. Does a mortgage count as a loan?

A. Yes, a mortgage does count as a loan. For this, a piece of property is considered as collateral on the repayments. Loans, contrastingly, can be secured or unsecured.

Q.3. What is the disadvantage of taking a mortgage?

A. One of the biggest disadvantages of taking out a mortgage is the long-term financial commitment involved. It is easy to get stuck in the cycle of paying EMIs for decades, which can turn out to be a financial burden if not planned well.

Q.4. Is it good to buy a mortgaged property?

A. Buying a mortgaged property in India can be an excellent option. One gets a ready-to-move-in home at a discounted price even though the process involves a lot of steps.

Q.5. Can you pay off a mortgage early?

A. Yes, you can pay off your mortgage early. This is referred to as prepaying a mortgage. However, this prepayment can come with a prepayment penalty.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.