Basically both these types of loan require the collateral of property; however there are slight differences between the two. The mortgage style loan is usually where the home purchased is used as collateral against the loan, whereas the home equity is where the existing property is used as collateral to take out a second loan. Both are legal entities that are fairly compatible means of acquiring funds.

 

1546_16135_mm_0230

 

 

The home equity loan also known as the second mortgage is usually divided into two categories which are the fixed rate loan and the home equity lines of credit.

 

The fixed rate loan provides a simple onetime payment to the borrower which is repaid over an agreed set period of time, with the addition of the interests changes added on.

 

The payment amount and interest charged remain fixed throughout the payment period. As for the home equity lines of credit, it functions much like that of credit card advances.

 

The amounts extended are fixed and can be withdrawn according to the needs of the borrower. The interest and repayments are not fixed and are calculated according to the current rates available.

 

The payments are also only charged on the amounts withdrawn and not only whole sum advanced, if it is not used in its entirety, thus creating a simple and easy source of cash.

 

The mortgage loan is also a fairly simple and straight forward style of acquiring funds to secure the purchase of property. The lender’s risks are comparatively low as the amounts lent are usually lesser in percentage to the actual value of the property.

The borrower will also be vetted for his or her suitability and credit ratings history before the loans are given out. In this scenario the lender is totally covered as in the event of a default on the part of the borrower the lender is able to collect the outstanding amount in the form of the property.

 

Morguefile_CIMG9873