Drawing the Line Between Mortgages and Home Equity Loans

Mortgage and home equity are secured loans that you take out by offering collateral to the private lenders in case you’re unable to pay back an installment. As of 2018, both residential debts are liable to a tax deduction of up to $750,000.

With the similarities out of the way, let’s get into the differences between a mortgage and home equity.

Hard Money on Mortgage

A mortgage is a loan you take out on a property in which you hold no stake at the time of purchase. Most mortgages have a fixed rate on a 30-year loan, but the terms might be softer with private money loans with shorter durations and room for flexibility in the monthly or annual rate.

Hard Money on Home Equity

You can only sign up for a home equity loan if you own a property. On occasions where you’re still paying your mortgage installments, home equity is regarded as a second mortgage you take by offering up the paid amount on the same property as collateral.

For example, if you have yet to pay $100,000 on a million-dollar property, the $900,000 that has been paid is the equity you can put forward as collateral. Most lenders offer up to 75% of equity to borrowers, depending on their company policy, client records, and the nature of the property’s title.

Mortgage vs. Home Equity

Mortgage and home equity have their respective edge and therein lie their main differences.

· Efficiency

The approval process for both loan types is similar as far as background checks and vetting are concerned.

However, the borrower may be exempted from an in-person inspection when seeking a second mortgage if it costs less than a set threshold amount.

· Closing Fee

Closing fee is yet another reason borrowers should take out another mortgage on an existing property to fund a new one.

Some companies offer a discounted closing fee if the homeowner closes on their equity loan earlier than the stipulated deadline, thus saving time and money.

· Rates

However, for all its advantages, a mortgage rate is still far lower than a home equity rate because the latter is usually a second mortgage that investors secure to fund a venture, cover tuition, or buy another property. Thus, the first lien on your primary loan is usually with your first lender in case you go into foreclosure.

Where hard money real estate loans are concerned, you can’t do better than Insula Capital Group, a hard loan lender of mortgage loans, construction, and fix and flip financing. They’re fast, simple, and can be accessed by anyone within the US.

Pay a virtual visit for loan-related queries.