Home Equity Loan Vs. Mortgage: What’s The Difference?
When you’re looking to buy a home, especially your very first one, all the loan terminology you’re being introduced to can feel confusing. You probably want to make sure that you find the right financing option to pay for a house.
What Is A Mortgage?
Before we discuss home equity loans, let’s talk about what a mortgage is. A mortgage is the most common way to finance the purchase of a house. It’s a loan that is repaid with interest over a period of many years, typically 15 – 30. Most of us can’t afford to purchase a $400,000 home upfront with cash – so a mortgage makes it possible for us to split the cost into manageable monthly payments over a long period of time.
What Is A Home Equity Loan?
A home equity loan is another form of financing, but it differs from a mortgage in many ways. This type of loan is one you get while you already have a mortgage – or perhaps after you’ve paid a mortgage off. Home equity loans are second mortgages that can allow you to borrow more money for things like home improvements, debt consolidation and more on top of the money you’re already borrowing to pay for your house. You cannot use a home equity loan to purchase the entirety of a house the way you do with a mortgage.
If you’re looking to purchase a home, a mortgage is likely the type of financing you will want to pursue. If you already have a home and are searching for ways to utilize some of your equity for a large purchase, a home equity loan can be a great option. Knowing the difference between these two loans as well as others will help you make informed decisions as you explore different financing options throughout your homeownership journey.
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