Home Loan Equity vs Home Loan Mortgage - Which is Better? Aditya Birla Capital

Keeping in mind that there could be any kind of emergency that life might throw towards you, you should always be ready to deal with a financial crisis. Knowledge about the kinds of loans you can take on a property might help manage the situation quickly and efficiently. You can take two types of loan against your property- a mortgage loan or a home equity loan. Let's understand the key differences.

A mortgage is a loan given by lenders on any real estate property owned completely by the borrower. It means the home has no existing hypothecation. A home equity loan is given against the owned equity of a fully constructed property. Owned equity here means the part of the property for which the loan has been paid.

• Rate of Interest The interest rate of a mortgage is usually lower than the home equity loan. The rate of interest of a home equity loan is usually lesser than a personal loan.
• Loan Amount The loan amount in a mortgage is up to 90% of the property's value. The loan amount in a home equity loan is based on the difference between the value of the property and the remaining mortgage balance. Individuals can apply for loans up to 60% of this net value.
• Credit Score A mortgage is usually offered to individuals with a good credit score. On the other hand, a home equity loan can be a good option for people with a low credit score.

A mortgage loan usually takes less time to process as the lenders only have to verify the property's current market value and rightful ownership. On the other hand, a home equity loan might take longer as the lender has to derive the net value of the property by finding its current market value and the existing obligation standing against it.

The main difference between home equity loan and mortgage is the tax benefit. Mortgage offers a tax deduction on home loans under section 37(1) and section 24 to make them more affordable. However, no tax benefits are available on home equity loans.These are the basic differences between a mortgage and a home equity loan. If you think you require one of these to get you out of a sticky financial situation, don’t hesitate to contact your lender.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.