Mortgage vs Home Equity Loan vs Home Loan
Mortgage and home loan are terms that are used interchangeably and, therefore, refer to the same thing. However, a home equity loan is very much different to a mortgage, as it is a second mortgage taken on the house or real estate property, taking into consideration the equity that the borrower has paid up on the initial mortgage. Despite their similarities, there are a number of differences between a mortgage and home equity loan. The following article gives a clear overview of each loan and explains the similarities and differences between the two.
What is Mortgage?
Mortgage is a type of loan that is taken out with real estate or property as collateral. A mortgage is a contract between a lender and a borrower that allows the borrower to borrow money from the lender for the purchase of housing. A mortgage is also an assurance to the lender that promises that the lender can recover the loan amount even if the borrower defaults. The home that is being purchased is pledged as a security for the loan and which, in the event of default, be seized and sold by the lender to recover the loan amount from the sales proceeds. However, the possession of the property remains with the borrowers (as they usually reside in their home). The mortgage comes to an end once in either two circumstances; if the loan obligations are met, or if the property is seized.
Types of mortgages include fixed rate mortgages that charge a fixed interest through the life of the loan, adjustable rate mortgages where the mortgage interest rates are adjusted from time to time, interest only mortgage for which no principal repayment is made for some time.
What are Home Loan and Home Equity Loan?
A home loan is a term used interchangeably for mortgage and, therefore, refers to one and the same. A home equity loan, however, is another mortgage that is taken on the real estate property, where the borrower can borrow against the equity on their home or real estate. The equity on the home is the difference between the amount owed by the borrower and the market value of the house. In short it is the amount of the mortgage that has been paid by the borrower on the house or property. For example, on a loan of $300,000 the borrower makes a down payment of $30,000, and this $30,000 will be the home equity, which means that a home equity loan can be taken out on the $30,000 equity in the house. Repayments on the home equity loan happen alongside the original mortgage in which the borrower pays the interest and principal repayments on the loan.
Mortgage vs Home Equity Loan vs Home Loan
Home loan and mortgage are pretty much the same thing as a mortgage is a loan on a house or real estate property. A home equity loan and a mortgage loan, however, are quite different to one another. The main difference is the purpose for which each is taken out. A mortgage is taken out with the purpose of owning a house, property, or real estate. A home equity loan, even though is taken out on the equity on the house, may be taken for a number of reasons including paying credit card debt, paying medical bills, paying for education. Despite their differences, both mortgage and home equity loans require the house or real estate property as collateral. In the event that the borrower is unable to meet his loan obligations, whether in a mortgage or a home equity loan, the bank has the ability to seize the house to recover any losses.
What is the difference between Mortgage and Home Loan?
• Mortgage is a type of loan that is taken out with real estate or property as collateral.
• A home loan is a term used interchangeably for mortgage and, therefore, refers to one and the same.
• A home equity loan, however, is another mortgage that is taken on the real estate property, where the borrower can borrow against the equity on their home or real estate.