Home Equity Loan vs Mortgage: What’s the Difference?

When it comes to financing a home, there are a lot of options out there. One popular choice is between taking out a home equity loan or a mortgage. It’s important to understand the difference between these two types of loans and their respective advantages and disadvantages. Let’s break down what you need to know about each one.

Home Equity Loans

A home equity loan is a type of loan that uses the value of your home as collateral. This means that if you default on your loan, your lender can foreclose on your house and get its money back from the sale proceeds. The amount you can borrow with a home equity loan depends on how much equity you have in your home—which is determined by subtracting what you owe on your mortgage from the appraised value of the property. The interest rate for this type of loan is generally lower than other types of loans, but it does require more paperwork and usually takes longer to process than other types of loans.

Mortgages

Mortgages are typically used when purchasing a new home, but they can also be used for other purposes such as refinancing an existing mortgage or taking out cash against the value of your home (known as a cash-out refinance). Mortgages also use the value of your home as collateral, which means that if you default on your payments, your lender can foreclose and take possession of the property. However, unlike home equity loans, mortgages typically have much lower interest rates and can be easier to qualify for since they are based on income and credit score rather than just the amount of equity in the property.

Benefits of Home Equity Loans

Home equity loans can be used to finance renovations or other large expenses without taking out a second mortgage. They generally have much lower interest rates than other types of loans (such as credit cards), making them an attractive option for those who need quick access to capital but don’t want to pay high-interest rates on their debt. Additionally, since your home serves as collateral for your loan, lenders may be willing to extend higher amounts than they would otherwise—giving you more leeway with your debt. Plus, if you’re able to pay off the loan early, you could save money by avoiding paying interest on the remaining balance.

Benefits of Mortgages

Mortgages offer more flexibility when it comes to repayment terms and conditions than home equity loans do because lenders are typically willing to customize individual agreements based on their borrower’s financial situation. Additionally, while interest rates on mortgages tend to fluctuate over time depending on market conditions, they are usually much lower than what would be charged on most consumer loans like credit cards or personal loans due to the fact that your home serves as collateral for your loan. Finally, fixed-rate mortgages lock in a steady monthly payment amount over a set period of time, providing borrowers with financial stability throughout their loan term.

Mortgages from Six Pillar Lending

When deciding between a home equity loan or mortgage, Six Pillar Lending knows it’s important to consider all aspects including interest rate, repayment terms, fees/closing costs, and qualifications/requirements. Each option has its own advantages and disadvantages depending on what you’re looking for in terms of financing needs. No matter which one you choose though, make sure that you understand all aspects before making any decision so that you can make an informed choice about how to finance your real estate purchase or refinance needs.

If you’re buying a house and looking for an affordable home loan that works for you and your family, contact us at Six Pillar Lending today!