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Home equity loan vs. Mortgage
When it comes to financing the purchase of a new house, you can choose to take a mortgage, a regular loan, or a home equity loan. The features of a home equity loan vs. mortgage have been assessed and analyzed over time. This is because they are the best methods to employ in financing a new apartment. The differences between them are the very things that define them. Hence, there are clear explanations of home equity loan vs. mortgage.
Definition of home equity loan vs mortgage
Home equity loan is a type of loan that allows you to borrow money using your home as collateral. The amount borrowed can be used to purchase another home, renovate the home, pay for college tuition, purchase an asset, and, soon. The loan amount and interest rate are fixed and to be paid at a specific time. A mortgage is a loan that a bank or mortgage lender offers so as to aid the purchase of a home. The loan is secured by an asset, and the borrower is expected to have a good credit rating. One way to look at it is that a home equity loan is sometimes regarded as a second mortgage. Here are the differences between a home equity loan vs. mortgage loans.
Differences of home equity loan vs. mortgage
There are similarities of that exist with the home equity loan vs. mortgage loans. One of such is the fact that both are loans that can be used to finance a home purchase. Here are the real differences for the home equity loan vs. mortgage.
The security or collateral required is the first clear difference between the home equity loan and the mortgage. For a home equity loan, there is only one type of collateral or security, and it is the borrower’s home. However, the security for a mortgage can be literally anything of value. For the home equity loan, the value of the loan is usually up to the value of the home property. For the mortgage, the value of the secured of the asset is also always put into consideration.
Purpose of loan
On the flip side, the purpose of the home equity loan is for anything. The loan is backed by the house, but it can be used to make other kinds of purchases. As said, it could range from college funding to daily expenses, and even purchasing other assets. With a mortgage, while it is backed against other kinds of assets, it is only used to finance the purchase of a house.
The interest rates charged on a home equity loan is completely different from the interest rate charged on a mortgage. For one, the interest rate on home equity loans is generally higher than first mortgage loans. Also, the interest rate on a mortgage can be fixed or variable. The interest rate for a home equity loan is fixed for a traditional one and variable for a home equity line of credit is variable.