Question : What is the difference between a mortgage and a home equity loan?
I own a home that is paid off but would like to take out a loan to fund some home improvements as well as help my parents pay off their home equity loan. Given this scenario can I take out a mortgage since mortgage rates are lower or am I limited to a home equity loan. I'm not interested in HELOC's.
- asked by BC
All Answers:
Answer #1
You can easily get a fixed rate first mortgage andget cash out (equity) for your scenario. Checkwith your local bank or mortgage company. You arenot required to take out a HELOC.
- answered by Mr. Knowitall
Answer #2
There is no difference. They are both mortgages. Both will take a lien agaisnt your property. Youhave a couple options.1. You take out a setamount of money, say 50,000. You will paypayments on that until you pay it off.2. You takeout a home equity line of credit for 50,000. Thatis like a credit card you can pay it down and thenborrower against it again. You only pay what youtake out. It can go up and down.The first choiceis amortized with a fixed payment to fixed terms,the second can adjust according to what you dowith the money.
- answered by financing_loans
Answer #3
No, you can take out a first mortgage. HELOC'sare generally second liens on a home, but the loanstructure may allow them to be first liens aswell.The major difference is how much you arecommitted to and the time frame in which they canbe paid.If you KNOW you need to take out $30-50Kor more, then get a mortgage on your home, asthese are definately the best rates. HELOC's costmore b/c you are not required to take an immediatedraw, and it's actually a line of credit...muchlike a credit card.You don't want to take out aHELOC if you have another alternative.PS: $30,000is usually the minimum for a firstmortgage...HELOCS are less...that may also make adifference to you.
- answered by Mary B
Answer #4
Mortgage repayments are generally over a muchlonger period of time than with a home equityloan, and the interest rates are lower with themortgage. Go for it.
- answered by TitoBob
Answer #5
Just the packaging of the financial product. Onceupon a time Home Equity Loans were called 2ndmortgages. The real difference is risk factor forthe bank. Typically Home Equity Loans are 2nd tobe paid in the event of a foreclosure or other badfinancial happening - leaving them exposed ifthere wans't any many for them at the end of theday. So they charge you a bit more interest tocompensate for this additional risk. Since youwould be leveraging your house for the 1st timeagain, and the holder of this new "note" would bethe only creditor and thus 1st in line for paymentin the event of default, lenders may negotiate alittle and get you a better rate. Its probably something you should take to a localbank or branch where you can work with a realperson. I wouldn't advise trying to work thisdeal through an online lender.
- answered by dmaturin12
Answer #6
The main difference is that with a mortgage youare borrowing all of the money at once and will bepaying interest on the entire amount from day one. Home equity loans allow you to draw the funds onan as needed basis and only pay on the money youare using. They are both liens on your realestate and can be in first or second position. Most equity lines adjust the interest rate basedon a % over prime and are therefore similar toadjustable rate mortgages in terms of interest.
- answered by spirus40
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