Life is known to take uncertain turns, necessitating the need to have emergency funds in place. At most times, you may not have planned for such financial hardships. At such times, loans are a handy option considered to overcome funding difficulties. A home is one valuable asset against which we can borrow money. Lenders offer two types of loans against a residential property: Home Equity Loan and Mortgage Loan (Mortgage).
One can now avail of home loans at affordable home loan interest rates. Also, readily available home loan EMI calculators provide customized home loans, simplifying the whole home loan process for the borrower.
What is a Home Equity Loan?
A home equity loan is also called a second mortgage loan. This loan allows borrowers to borrow money against the equity of the property that they own. A home equity loan is mainly offered only on an entirely constructed property with a clear title.
What is a Mortgage?
A mortgage implies a secured loan granted by home loan lenders, including banks and Housing Finance Companies, against a commercial/residential property owned by a potential loan applicant. Under Mortgage, a borrower can borrow a loan against any residential or commercial property that they own.
Key Features of a Home Equity Loan
- A borrower with a low credit score eligible to apply for a home equity loan
- Higher loan amount as compared to a personal loan
- Can be applied for various purposes
- Flexible repayment option with tenure up to 15 years
- Attractive rate of interest
- Can be availed on both residential or non-residential property
Key Features of a Mortgage
- Both salaried and self-employed individuals are eligible
- Higher loan amount at a low rate of interest and repayment tenure of up to 15 years
- Tax benefits available
- Faster loan processing and approval time
- Loans can be used for various purposes
- Can be availed on residential/commercial property/land/plot owned by the borrower
For both Home Equity Loan and Mortgage, the borrower has to pledge their property as collateral.
However, both these loan types differ in certain key aspects.
Differences Between Home Equity Loan and Mortgage
|Home Equity Loan
|Home Loan Amount
|Up to 60% of the Net value available (Net value means the current market value of the property less any outstanding loan)
|Either up to Rs.10 crores or 80% of the property value
|Deciding Factor for Loan Amount
|Difference between the property’s current market value and the borrower’s (owner) mortgage outstanding due
|The current market value of the property
|Home Loan Interest Rates
|Less than a personal loan
|Less than a home equity loan
|Home Loan Interest Type
|Generally fixed rate
|Generally floating rate
|Home Loan Type
|● Fixed-rate loan – the borrower can avail larger amount loan at a fixed interest rate over a fixed tenure
● Home equity line of credit – the borrower can withdraw funds as per their convenience, via the issued cheque book/ credit card
|● Regular mortgage loan (Term loan)- the borrower can get a large amount of loan at a floating interest rate
● Overdraft facility – the borrower can deposit surplus money in the account for a short period and get reduced interest liability
● Top-up loan – the current borrower can get extra funds over their existing loan on completion of a specified number of successful repayments
|2 – 4 weeks (based on documentation clearance and related verification)
|Up to 10 days (based on documentation clearance and related verification)
|Differs between lenders
|NIL prepayment charges for floating rates
Knowing the key differences between Home Equity Loans and Mortgages, as stated above, would help one choose the best home loan option at attractive home loan interest rates as per their loan requirements. For more details, visit Tata Capital.