Do not confuse home equity loan with mortgage loan

Buying a dream house is the prevalent accomplishment in life. You not only accomplish your ambition for breathing in your own house but also add up to your asset. A house also affixes to the status quo of an individual. There are banks and unions provisioning the fulfillment of this dream but with certain criteria’s in consideration. However owning a home is not enough. After a period, one comprehends that there is remodeling, refurnishing and other jobs to be done in the house. For this intent there is provision of loan. However, the loan acquired for buying a house is different from the loan needed for doing up the house.

Purchase of house needs to be done through mortgage loan. Lenders keeping certain criteria’s in mind usually mull over the loan. The financial status of the applicant, credit record, income, paying capacity and the down payment value are important for acquisition of mortgage loan. It is a time taking process but these basic steps are essential for assuring the lender of returns. The interest rate for these may be variable as well as fixed. Generally, the fixed interest rate is higher than the variable. The time of repayment is fixed and may vary from 5 years to 30 years. There are also provisions of convenient repayment where whenever one gets extra money; it will go towards the payment of principal. This reduces the interest rate as well as fastens the repayment process.

However, for remodeling and for painting the house one need not withdraw the hard saved cash. It requires just keeping the house as collateral and applying for home equity loan. This category of loan is nowhere related to buying of house. On the contrary, the house here is reserved as safety deposit to draw loan from lenders.  The acquisition of this type of loan is easy as the lenders are assured of repayment through one way or the other. There are numerous lenders gunning to woo more clients and hence each comes up with a unique recommendation. Here in addition, the period of repayment is fixed and the interest rate too is low. For equity loans, the loan amount is premeditated taking into account the present value of the house and the mortgage amount.

There are cases where an individual is burdened by mortgage loan as well as equity loan and in these cases, there is another option considered. The borrower generally goes for merger of both the loans to reduce the interest value. Moreover, the homeowner has to pay one loan instead of two. This is effective in cases where the home loans are acquired for a longer period and the equity loans too are acquired for prolonged period. The merger considerably eases of the interest as the equity loan interest is variable.

Hence, do not puzzle between mortgage loans with equity loan. Though equity loan is generally referred to as second mortgage but it does not refer to as loan acquisition for buying a house. Infact second mortgage apart from remodeling the house can also be considered for holidays, fee payment and weddings.