There are multiple differences between a mortgage loan and a home equity loan. But are they valid options for the same situations? Or are they completely different products? Pay attention, we tell you when it may be convenient to apply for a loan with a real estate guarantee against the traditional mortgage.
First of all, you must be clear that a home equity loan is somewhat different from the home loan. These loans with collateral allow you to access a large amount of cash using as collateral a property or home in your name. These types of financing are generally offered by private lenders, while mortgages are more abundant in traditional banking.
And secondly, what makes this financing with mortgage guarantee more attractive is that you can apply for this loan even while in Credit Institutions . In addition, in this type of loans it is necessary to take into account that it is financed based on the net value of the property used as collateral and its purpose is to obtain financing for different purposes to buy a house, for example: buy a car, pay for studies , for reforms, for business projects … etc.
As we said, in the case of mortgage loans , bank entities are usually granted and are financial financing for the sole purpose of acquiring a home or property.
Conditions of secured loans and mortgages
In the case of mortgage loans or simply mortgages , the credit institution has the power to sell the mortgaged property in case of default and, thus, recover the amount pending repayment.
On the other hand, loans with a mortgage guarantee are a viable option of economic aid , but it will only be possible if we have a legal age and a property in our name, regardless of our economic capacity. The risk is the possible loss of housing in case of default.
Characteristics of each type of loan
Mortgage or mortgage loan
As for mortgage loans , they usually have a lower interest rate , because the bank assumes fewer risks when requesting documentation that ensures, to a greater extent, the repayment of the loan. Its main features are:
- High cost but has lower interests.
- Prolonged time in time. There are mortgages of up to 40 or 50 years.
- It is possible that the financial institution requires the direct debit of the payroll , thus increasing its commitment.
In short, these are loans with an extended duration in which the conditions vary based on the mortgaged asset, in addition to the amount borrowed.
Loan with mortgage guarantee
On the other hand, home equity loans have a higher interest rate than mortgage loans, since the financier is at greater risk. The characteristics that make the loan with a mortgage guarantee different from the other loans are:
- They use a property as guarantee
- Anyone can qualify for these loans, including people included in the delinquent registry such as Credit Institutions.
Also, the operation is very simple. You receive the necessary help with a fixed interest rate, giving the credit institution absolute control over the property in case of default.
When comparing a mortgage and a loan with a mortgage guarantee?
In the case of mortgages or mortgage loans, there is usually more talk about Interest rates, while in home equity loans, comparisons are made with the APR. The difference between TIN and APR is quite simple. The TIN refers to the percentage the bank receives for lending the money. The APR is the interest rate that informs us of the performance of our financial product, the total cost of the loan and is calculated based on the TIN.
The key will be to compare The APR and the TIN to know how much we will return at the end and in how many installments, as well as if we will be able to face them with our salary or financial muscle.
Although it is normal to opt for a mortgage loan to buy a house, it is possible that in some circumstances we will consider opting for a personal loan that gives us large amounts of financing or a home equity loan if we already have some property in the property.