Difference Between A Home Equity Loan And A Mortgage

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Difference Between A Home Equity Loan And A Mortgage


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With the changing trends in the market, the financial institutions are devising innovative lending schemes. Traditionally mortgage was the most sorted financing option people used to settle for.

Of late the money lending market has observed an emerging shift towards home equity loans instead of mortgages.Home equity loans are also known as second mortgage. Unlike mortgages the repayment of an equity loan becomes secondary in the cases of foreclosure and bad finances. Therefore, the rate of interest charged on these loans is quite higher as compared to refinancing or mortgaging. Also a mortgage can be paid back over a longer period of time whereas the equity loans have lesser repayment durations. These loans end up costing more because one does not need an immediate draw and it is similar to a line of credit.

A mortgage implies that the entire amount is borrowed at once and interest starts accruing from day one, whereas with a home equity loan one can the draw the funds as and when required and pay the amounts borrowed only.  In terms of interest, most equity lines are similar to the mortgages as the rate of interest is calculated based on a percentage over prime. Both the options are liens on property but with varying terms and conditions.

One can refer to various websites to have a basic understanding of their choices before opting for any one of the above.

The first choice is amortized with a fixed payment to fixed terms; the second can adjust according to what you do with the money.

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Difference Between A Home Equity Loan And A Mortgage

 
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Home-Equity-Loan-Basics      Ever wondered whether you can take a loan against your existing house without having to shell out exorbitant rates of interest? Then you need to know about the financing option called the home equity loan or HEL. This type of loan allows you to take a loan against the equity in your house and use it to finance the education of your children or for medical and other emergencies. More..



 
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Difference Between A Home Equity Loan And A Mortgage