What is the difference between a mortgage and a home equity loan?
Written By: admin on May 22, 2009
2 Comments
I own a home that is paid off but want to take out a loan to fund some home improvements as well as help my parents pay off their home equity loan. Given this scenario can I take out a mortgage since mortgage rates are lower or am I limited to a home equity loan. I'm not interested in HELOC's.
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Tags: heloc, Home Equity, home equity loan, home improvements, mortgage rates, parentsTags: heloc, home equity loan, home improvements, mortgage rates, parents
Just the packaging of the financial product. Once upon a time Home Equity Loans were called 2nd mortgages. The real difference is risk factor for the bank. Typically Home Equity Loans are 2nd to be paid in the event of a foreclosure or other terrible financial happening – leaving them exposed if there wans't any many for them at the end of the day. So they charge you a bit more interest to compensate for this additional risk. Since you would be leveraging your house for the 1st time again, and the holder of this new "note" would be the only creditor and thus 1st in line for payment in the event of default, lenders may negotiate a small and get you a better rate.
Its probably something you should take to a local bank or branch where you can work with a real person. I wouldn't advise trying to work this deal through an online lender.
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