While many people use the terms “home loan” and “mortgage” interchangeably, they aren’t exactly the same thing. While it’s true that loans and mortgages are closely related, there are some distinct differences between the two. Here is what differentiates loans from home mortgages.
A loan is a relationship between a lender and borrower. The lender will give the borrower an initial amount of money known as the principal. In return, the borrower will pay back the principal over a period of time, along with an additional fee called interest.
Mortgages are a specific type of loan used for the sale of homes. Mortgages are a type of loan called a secured loan in which the loan is tied to a specific property. Under a mortgage, the lender will give the borrower money to purchase a home. The lender will allow the borrower to own the home so long as they make their regular mortgages payments. Once the borrower pays off their mortgage, they will gain full-ownership status of the property. However, if the borrower fails to make their mortgage payments, then the lender can take the property as collateral. In this case, the lender can reassert ownership of the property and have it foreclosed upon to recoup their losses.