Second Mortgage vs Home Equity Line of Credit
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If last year has taught us anything, it is that problems and uncertainties can come at any time. They won’t even warn you, and place you in a whole lot of financial hardships. Such times when the need of the hour is for urgent funds, you need a well-informed approach and a sound decision making process.
There are so many ways you can take a loan, but some of the ways are better than others. For instance, out of the many things that can be put as collateral for loans, your house is one of the most valuable assets.
There are two types of loans which are offered by banks against mortgage of a residential property. These are Mortgage loans and home equity loans. Below given is a comparison of the two.
|
Category |
Mortgage Loan |
Home Equity Loan |
|
Definition |
A mortgage loan is a type of secured loan offered by banks and Housing Finance Companies (HFCs) against a commercial or residential property owned by the borrower. |
A home equity loan, also known as a second mortgage loan, allows homeowners to borrow against the equity in their property. This loan is typically offered on a fully constructed property with clear title. |
|
How is Loan Amount decided? |
The loan amount depends on the current market value of the property. |
The loan amount is based on the difference between the current market value of the property, and the owner’s mortgage balance due. |
|
Loan Amount |
Up to Rs.10 crore |
Up to 60% of the Net value |
|
Loan Tenure |
Up to 15 years |
Up to 15 years |
|
Rate of Interest |
Lower than a home equity loan |
Lower than a personal loan |
|
Type of Interest |
Floating (in most cases) |
Fixed (in most cases) |
|
Processing Time |
Up to 10 days (subject to documentation clearance and other verification) |
2 to 4 weeks (subject to documentation clearance and other verification) |
|
Prepayment Charges |
No prepayment charges for floating rates |
Varies from one lender to another |
|
Features & Benefits |
|
● Available to individuals with low credit score |
|
Loan Types offered |
● Top-up loan: allows the existing borrower to avail extra funds after a certain time period of successful repayment |
● Home equity line of Credit: allows the borrower to withdraw funds as per his/her convenience, through the issued cheque book or credit card |
As you can see, both lines of credit can give you considerable loan money, even at lower interest rates and short periods of time. Note however that the loan amount depends on the property’s current market value. It can be less than what is offered in a home equity loan since in this case a new property has more value.
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