Difference Between Home Equity Loan Vs Mortgage Loan

There can be multiple reasons why a person may be in a situation of financial crisis in their life. What is required at the time of a financial emergency are proper resources and information. It is always very important for you to have the ability and support to be able to make a sound decision at the time of crises. Depending upon the severity of the urgency, there is one particular loan that is used by people. It is a loan where you have to keep your house, your most precious asset, the loan amount that you are borrowing. There are certain loan options that are available at the banks known as home equity loan and mortgage loan. However, it is always best to clearly understand the details of these two loans. Therefore, you may take a look at the following points of comparison to understand the differences between home equity loan and mortgage loan better:

What is a home equity loan?

Home equity loan can be defined as the second mortgage loan which allows people to borrow money against what is known as the equity of the property that they own. Home equity loan is offered only on completely constructed properties which also have clear titles.

What is a mortgage loan?

Mortgage loan can be defined as a secured loan that is offered by banks as well as Housing Finance Companies or HFCs. This type of loan is offered against any residential or commercial property that is owned by the borrower.

What are the differences between a home equity loan and a mortgage loan?

• Loan Amount

Home equity loan: The loan amount that is available in case a home equity loan is generally based off of the difference between the owner's mortgage balance which is due, and the property's present market value. The loan amount in this case is up 60% of the total net value.

Mortgage loan: The loan amount in case of a mortgage loan largely depends on the property's present market value. The loan amount can be up to eighty percent of the present property value, or Rs. 10 crores.

• Loan Tenure

Home equity loan: The Loan Tenure for a home equity loan is fifteen years.

Mortgage loan: The Loan Tenure for a mortgage loan as well is fifteen years.

• Rates of Interest

Home equity loan: It is lesser than that of personal loan.

Mortgage loan: It is lesser than that of a home equity loan.

• Interest Types

Home equity loan: The type of interest in most of these cases is generally fixed.

Mortgage loan: The type of interest in most of these cases is generally floating.

• Processing

Home equity loan: The time taken for the processing to be finished is between two to four weeks. It depends on the clearance of all the documentations, and other procedures of verification.

Mortgage loan: The time taken for the processing to be finished is up to ten days only. It depends on the clearance of all the documentations, and other procedures of verification.

• Prepayment Charges

Home equity loan: The charges of prepayment differs from one company to another in case of fixed interest rates.

Mortgage loan: There are no charges of prepayment in case of floating interest rates.

What are the features and benefits of home equity loan?

The following are a list of features and benefits of home equity loan:

• It is available for people with a lower credit score.

• It has a loan amount that is higher than that of a personal loan.

• You have the freedom to spend the loan amount on any kind of purpose you have.

• There is flexibility in the tenure of repayment.

• There are affordable and attractive interest rates.

• The loan can be taken against any kind of residential as well as non-residential property.

What are the features and benefits of mortgage loan?

The following are a list of features and benefits of mortgage loan:

• It is available for people with a good salary as well as self employed people.

• It has low interest rates available.

• There are a number of tax benefits that can be attractive.

• It has a loan amount that is higher as compared to home equity loans.

• The processing of the loan is faster, followed by quick approval.

• The loan amount can be used by you for any purpose.

• You may avail the loan against a residential or a commercial property, or a land or plot that you own as well.