The Difference Between Home Equity Loans and a Mortgage

There are many reasons why you may choose to acquire a home equity loan rather than a mortgage. Some of the most common reasons include paying off existing debt, renovating your home or making some larger purchases. However, you should understand the difference between home equity loans and a mortgage before you make a final decision in this respect.

The Features of a First Mortgage
In order to understand how mortgages and home equity loans work, you need to understand the difference between a first and a second mortgage. Here are some details about each type of mortgage:

  • A first mortgage is the first loan that is attached to your home as an asset. Your home is the collateral for the mortgage.
  • A mortgage is usually acquired by first-time homeowners as a means to finance the respective purchase.
  • It may also be used for the purpose of refinancing an existing mortgage into a new first mortgage.
  • The first mortgage is usually the largest loan you can acquire against your home.

The Features of a Second Mortgage

  • A second mortgage is conditioned by the existence of a first mortgage; essentially, you can’t take out a second mortgage if you don’t have a first mortgage. That means that the second mortgage is basically an additional loan to your first mortgage.
  • A second mortgage is acquired for many purposes, such as paying off outstanding debts, covering the costs of college tuition, home improvements or making any other type of major expenditures. In this respect, a second mortgage is quite similar to a first mortgage.

The Features of Home Equity Loans
Home equity loans are often referred to as second mortgages; yet, they are not one and the same thing. Here are some key facts about home equity loans:

  • Unlike a second mortgage, the home equity loan can be acquired even if you don’t have a first mortgage.
  • Home equity loans allow you to borrow up to 80% of your home’s value.
  • Home equity loans are designed to offer financial assistance for debt consolidation, home repairs, or other large expenses you may need to cover.
  • Home equity loans give you access to the cash value you’ve built up in your home over the years. Thus, your home value becomes your best ally.
  • Depending on how the money is used, the interest on certain amounts of money becomes deductible for homeowners.
  • Home equity loans offer access to customizable repayment options to suit your budget.

In the end, home equity loans are fast, affordable, and accessible ways to get cash for your immediate needs using the value of your home. Understanding the difference between a home loan and a mortgage can only support you in your purchasing decision. If you are interested in learning more about our home equity loans, apply online today at Fast Access Finance.