Home equity loan vs mortgage loan: Know the details
The main difference between home equity loan and mortgage is the tax benefit.
Life is full of uncertainties. One can face the need for emergency funds at any time for multiple reasons. In case of any financial emergency your property can play an important role. Financial institutions including banks offer various options to sanction loans to anyone people owning property. Knowledge about the kinds of loans you can take on a property might help you to manage the situation easily.
There are two main types of loans one can avail against their property — mortgage loans and home equity loans.
Home equity loan is a type of secured mortgage loan. A home equity loan is given against the owned equity of a fully constructed property. Home equity loan is offered only on completely constructed properties which also have clear titles.
Mortgage loan is also a secured loan that is offered by banks as well as non-banking finance companies (NBFCs). One can avail this loan by pledging any residential or commercial property that is owned by the borrower.
Home equity loan vs mortgage loan
Loan amount
The amount of a home equity loan is based on the difference between the value of the property and the remaining mortgage balance. Individuals can apply for loans up to 60% of this net value. On the other hand, the loan amount in a mortgage is up to 90% of the property’s value.
Interest rates
The rate of interest of a mortgage is usually lower than the home equity loan. On the other hand, the rate of interest of a home equity loan is usually higher than mortgage loan but lesser than a personal loan.
Interest types
In case of a home equity loan, the type of interest is generally fixed. In case of a mortgage loan, the type of interest is generally floating.
Credit score
A mortgage is usually offered to individuals with a good credit score. On the other hand, a home equity loan can be a good option for people with a low credit score.
Processing time
In the case of a mortgage loan the time taken for the processing is up to 10 days. On the other hand, a home equity loan might take longer.
Tax benefits
The main difference between a home equity loan and mortgage is the tax benefit. Mortgage offers a tax deduction on home loans under section 37(1) and section 24 to make them more affordable. However, no tax benefits are available on home equity loans.