If you have applied for a loan, you may have found two similar financial products in the name of completely different. We talk about mortgages and home equity loans.
From Lenders we want to help you understand the difference without difficulty. For this reason our experts have written the following article. Would you like to know more about this topic? Then do not stop reading what comes next. Go for it.
Differences between mortgages and home equity loans
Although they are terms that sound similarly they are completely different financial products. Let’s analyze each of them separately to see it more clearly.
What is a mortgage
When we talk about a mortgage we do it to refer to the type of loan that is requested to carry out the purchase of a property. In exchange for that capital, with which we pay our new home, we acquire a commitment in monthly installments and term to return the money to the bank along with the interest.
In these cases, for the financial institution to offer the capital, it uses as a guarantee the own house that is going to be acquired. In this way, if we stop paying the fees, the bank can seize the property to permanently amortize the debt. Between his more determining characteristics they emphasize the following:
- Very long repayment terms. When dealing with very high amounts of money, mortgages with terms of up to 40 years are offered today. We must be careful with them because in exchange for increasing the term we also expand the interest and therefore the final money we will pay for housing.
- Very demanding economic conditions. Since the loans are very high, the conditions to obtain them are very demanding. The solvency of the applicant must be faultless.
- They usually include linked products. From the obligation to open a current account with them. Take the payroll to your bank. Hire a credit card and sometimes even additional insurance.
If you want more information about the world of mortgages do not stop reading this post: When to ask for a mortgage extension?
Mortgage loans and their characteristics
As for the loans with mortgage guarantee they are those financial products that are used to acquire consumer goods instead of a property. However, as in the previous case, a property is used as collateral for the lender.
That is, with these loans we are not trying to acquire the home we use as collateral. But we request money for other purposes. From paying a debt, making a reform, buying a car, etcetera.
In case we do not respond to the debt as we must pay the monthly payments, the lender may request the seizure of the property used as collateral to amortize the debt.
Regarding the main features.
- In our company you can obtain a loan equivalent to 25% of the market value of the property. In other words, if the property used as collateral has a value of €300,000, we can request up to €75,000.
- The return periods are less extensive. Our loans with mortgage guarantee have a term of 1 year to 10 for the return.
- Less demanding conditions. Especially if you go to lenders and private equity companies to request them. Whose demands regarding the financial profile of the client are lower than in the banks. For example, many of these loans do not take into account that the client is in Asnef or that his CIRBE is not the most appropriate.
- No linked products.