home equity loan vs. mortgage loan

All You Need To Know For Managing Funds : Home Equity Loans vs. Mortgage Loans

Home Equity Loans as well as Mortgage Loans needs to have your home as collateral security. Thus it is important to pay the installments regularly as in both the cases lender has the right to seize the property if you do not keep up with your payments. In order to decide whether to go for Home equity Loan or Mortgage Loans one should understand the thin line between them.

How does Home Equity Loans Work

home equity loan vs. mortgage loan

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A home equity loan operates differently than any other loan because the lender looks at how much equity you have in your property. Then, they analyze and offer a loan amount based on the loan-to-value rate. One of the biggest benefits of a home equity loan is that it can provide you a large sum of money. The equity of your home is calculated by subtracting the lien or any other loan amount from the current market value of your home. The pre-condition to borrow the Home Equity Loan is to own a home and to have equity in that home. Generally banks provide loans on the basis of your equity in home which is probably 70-90% of your equity in home. The value of loan depends upon the bank’s policies. These loans offer low interest rates but does have high processing fees and closure charges. Home Equity Loan is an installment loan which is repaid over a fixed term.

How does Mortgage Loans Work

home equity loan vs. mortgage loan

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A mortgage occurs when an owner pledges his or her right of the property as security or collateral for a loan. Mortgage loans are usually entered into by home buyers without enough cash on hand to purchase the home and are also used to borrow cash from a bank for other projects using their house as collateral. These loans generally range from 5 to 30 years and interest rates are fixed. When people use the term “mortgage,” they generally mean traditional mortgage, in which a bank lends a borrower money to purchase a home. The interest rate on these types of loans are fixed but sometimes it can be fluctuating.

home equity loan vs. mortgage loan

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Since there are so many different types of loans, it can be difficult to choose the best loan for your needs. If you want a definite monthly payment and a definite period of time to pay off the loan, you should look primarily at home mortgage loans. A home equity loan gives you flexibility since it is a flexible line of credit. In deciding Home Equity Loan V/s Mortgage loan one needs to be cautious. This is a good option if you have projects to work on you do not have idea of how much fund will be required. Either option does put your home at risk if you default on your payments, if you do not pay the debt on time. It is important to carefully consider your budget to make sure that you are able to pay the debt on time. Once you do this you can choose perfect loan for yourself.