What is the difference between a home equity loan and a mortgage?

January 11, 2009 by · 5 Comments
Filed under: Blog 

My bf and I are thinking of making a house, he has the land already, I am completely new to this whole business. Can anyone clarify these concepts? To me they seem like the same thing. Thanks!

The Mortage is the first loan where you get the money to buy the house. Your house is the collateral, or the guarantee that you will pay the loan back.

You pay the bank back every month – principal, interest, taxes and insurance. They have a special savings account called an escrow account connected with your mortgage – the bank controls it. Your taxes and insurance go in there. When the bill is due for the taxes and insurance, the bank pays it.

The home equity loan is an entirely different debt – it's a second loan on the house. The easiest way to explain it is to give you an example:

My house is worth $75,000
On my mortgage, I owe $50,000
My equity (ownership) in the house is $25,000

In theory, I own the equity and can borrow extra money, putting up the equity as collateral for the second loan.

I hope that explains things!

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Comments

5 Responses to “What is the difference between a home equity loan and a mortgage?”
  1. Kevin says:

    Mortgage loan is a term used for the loans secured by a property. Mortgage loans refer to a loan secured by residential property, often for the purpose of securing real estate. Mortgage loans are priced lower than other loan structures because the value of the property risk for the lender.

    http://www.worldbestloans.com/Mortgage%20Loan.htm

    A fixed rate mortgage loan has its own benefit. If the borrower is budget conscious, he will remain at peace because the monthly mortgage amount will not change.Fixed rate mortgage loan is a loan where the interest rate remains the same through the term of the loan. Fixed rate mortgage loans are the most traditional form of loan.
    References :

  2. Somethingtotry says:

    Both are loans against the value of the house. A mortgage is considered the first loan against the house and is generally for an amount that is the purchase price less your down payment.

    A home equity loan is also called a 2nd mortgage. It is in essence a loan on the difference between what you owe on the home and the home's true value. In other words, if you owed $50,000 on a home and the value was $150,000 – you could possibly get a home equity loan for $100,000 (difference between what you owe and what the house is worth).

    So the bottom line is, both are loans on the value of your home.
    References :

  3. Vashti says:

    The Mortage is the first loan where you get the money to buy the house. Your house is the collateral, or the guarantee that you will pay the loan back.

    You pay the bank back every month – principal, interest, taxes and insurance. They have a special savings account called an escrow account connected with your mortgage – the bank controls it. Your taxes and insurance go in there. When the bill is due for the taxes and insurance, the bank pays it.

    The home equity loan is an entirely different debt – it's a second loan on the house. The easiest way to explain it is to give you an example:

    My house is worth $75,000
    On my mortgage, I owe $50,000
    My equity (ownership) in the house is $25,000

    In theory, I own the equity and can borrow extra money, putting up the equity as collateral for the second loan.

    I hope that explains things!
    References :

  4. Yvette B says:

    Mortgage is your initial purchase mortgage.

    Home Equity Loan is a loan on the equity that you have built up in the home that you probably have the mosrtgage on! Also known as a 2 nd mortgage!
    References :
    my own knowledge!

  5. Greenfin says:

    Equity is the difference between your home's value and the balance on your mortgage loan. If your home is worth $100,000 and you owe $75,000 on the mortgage, then you have $25,000 of equity in your home.

    and

    There are two types of home equity loans. A traditional home equity loan is also called a second mortgage and is when a bank lends you a lump sum of money that must then be paid back over time. With this type of home equity loan, interest begins building as soon as the bank issues you the money.
    References :
    http://www.home123.com

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