25 OCTOBER, 2021

Loans are no less than a boon for those who do not have enough money to fulfil their dreams. With loans, you can fund their needs and wants without being dependent on anyone else. Banks and financial institutions offer a host of different loans to cater to your needs, be it to buy a brand new car or purchase a dream home. However, often the presence of several options makes way for confusion. Home Equity Loans and mortgages are two such loans in which people often get confused. If you are not sure about the difference between the two, here is a small guide to help you.

What Is a Home Equity Loan?

A home equity loan is also called a second mortgage loan. It is a secured loan where you can borrow money against the equity of your home. You can avail a home equity loan only against completely constructed properties that have clear titles. Though you must fulfil the home loan eligibility to avail this loan. With a home equity loan, you can borrow a high amount and repay in flexible tenures. 

What Is a Mortgage Loan?

A mortgage loan is a secured loan where you can keep your property as collateral and borrow money for varied needs. You can avail a mortgage loan against your residential, industrial or commercial properties. Depending upon your property’s market value, you can get a high-value loan against your property and use it for any purpose. You can also avail tax benefits on mortgage loans if you use the amount for renovation or repairs of your house.

Though these two loans sound similar, there are various distinct differences between a mortgage loan and a home equity loan.

Difference between a Home Equity Loan and Mortgage

Basis Home Equity Loan Mortgage Loan

Amount of loan

The amount that you can avail with home equity loan is the difference between the property’s current value and the owner’s mortgage balance due.

The amount that you can avail in mortgage loan is based on the property’s current market value. It is usually 50-70% of the market value.

Interest rates

Lower than other loans like personal loans.

Lower than equity home loan

Types of interest rate

Depends on the lender, but is usually fixed interest rate.

Depends on the lender, but is usually a floating interest rate.

Prepayment charge

Depends on the lender and Regulatory guidelines.

Depends on the lender and Regulatory guidelines.

It is not difficult to find a suitable loan for you among the different options available. However, you must choose a loan type that caters to your needs and is consistent with your financial capability. If needed, you must not deter from consulting a financial advisor to help you make the right decision. 

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.