There are so many things in life that are misunderstood. Similar names are understood to have the same meanings which cause a lot of people to make unwise decisions. One of the best examples of this is the confusion between home equity loans and mortgage.
Let us start with their technical definitions. Home equity loan is a type of debt while mortgage is a means of using a property as security for the payment of a debt. Home loan is borrowing a sum of money which should be repaid in a specific length of time and with a specific interest rate. Mortgage is a type of a loan; an instrument which gives the owner the conditional ownership of an asset.
Despite the great difference in the definition of these two terms, many people still don’t see which is which. The best aspect to compare both is by their rates. The home equity loan has a changing line of credit and has bigger financial fees than mortgage but is actually cheaper in terms of the rates. The mortgage is totally the opposite; it has higher rates and lower fees.
Both of these can be affected by credit scores, so after examining their difference, proceed on examining your credit scores. Credit scores are the gauge of your trustworthiness for lending companies. So it is very important to maintain these scores to the recommended level of 600-800. This level of credit score will make it easier for you to be granted both the home equity loan and mortgage loan.
What makes home equity loan more difficult is that it is much more expensive in terms of fees because there is no property or asset that is being held as security in the part of the bank. So the best thing to do in making this kind of loan is to make sure you have a big down payment so as to lessen the total amount of money you are borrowing. Allocating a big down payment will help you get low interest rates and will avoid having over dated fees.
In all types of loans, the biggest reminder is to have self control. Good financial management stems from sound decision making and the honest desire to pay the debt as soon as possible. It truly pays to plan ahead before making any kind of risky move like making a home equity loan or mortgage loan.