Search
Mortgage vs home equity loan
624
Mortgage vs Home Equity Loan: What’s the Difference?
Let’s be honest – the words mortgage and home equity loan sound like they belong in some complicated bank manual. But in real life, it’s much simpler. Think of it like this: both involve your house and money, but the reason you’re taking the money – and when – makes all the difference.
What is a Mortgage?
A mortgage is what most of us in India call a home loan. It’s the money you borrow from a bank or lender to buy a house or flat. In return, the bank keeps the property papers until you’ve cleared every rupee you owe.
For example – Ramesh from Pune wants to buy a ₹60 lakh flat. He’s got ₹15 lakh saved up. The rest? He borrows ₹45 lakh from a bank. Until Ramesh finishes paying, the bank has a legal right over the flat. Miss too many EMIs, and the bank can step in and sell it to recover the money.
How Does a Mortgage Work?
When you take a mortgage, you agree to pay the bank back in EMIs (Equated Monthly Instalments) for 10 to 30 years. Each EMI has two parts – the principal (the amount you borrowed) and the interest (the bank’s profit).
Think of it like paying rent – but instead of your landlord, you’re paying the bank. The difference? After all EMIs are done, the house is fully yours.
What is a Home Equity Loan?
A home equity loan is a bit like dipping into your house’s piggy bank. You already own a home, and you use its value to borrow money for something else – maybe renovating the kitchen, funding your child’s higher studies, or starting a small business.
For example – Meera in Delhi owns a house worth ₹1 crore. She needs ₹20 lakh for her daughter’s MBA abroad. Instead of selling the house or taking a high-interest personal loan, she gets a home equity loan, using her house as the guarantee.
How Does a Home Equity Loan Work?
The bank checks your property’s current market value and how much of it you own outright. Usually, they allow you to borrow up to 60–70% of its value, minus any existing home loan balance.
If your house is worth ₹80 lakh and you have no home loan left, you could get a loan of around ₹50–55 lakh. The money comes as a lump sum, and you repay it over a fixed period – often at lower interest than personal loans, because your home is the security.
Key Differences Between Home Equity and Mortgages
| Feature | Mortgage (Home Loan) | Home Equity Loan |
| Purpose | To buy a new property | To borrow using an existing property |
| When Taken | While purchasing the home | After owning the home (fully or partially) |
| Loan Amount | Based on property price & income | Based on property value & ownership |
| Ownership | Bank holds papers till repayment | You already own it, bank takes a charge |
| Interest Rates | Slightly higher than equity loans | Often lower than personal loans |
| Repayment Period | Long-term (10–30 years) | Shorter (5–15 years) |
Conclusion
If you’re buying your first house, you’ll need a mortgage. If you already own a house and need funds without selling it, a home equity loan is the way to go. Both are smart tools – the key is knowing when to use which.
FAQ
Q1: Is a home equity loan the same as a mortgage?
No. A mortgage is taken to buy a home, while a home equity loan is taken against a home you already own.
Q2: Which is better – mortgage or home loan?
In India, a mortgage and a home loan are the same thing. The choice is about whether you’re buying or using your home’s value.
Q3: What is the disadvantage of a home equity loan?
If you can’t repay, the bank can sell your home. It’s still a big risk.
Q4: What is the difference between a home equity loan and a conventional loan?
A conventional loan (like a personal loan) is unsecured and has higher interest. A home equity loan is secured against your home and usually comes with lower interest.
Disclaimer : Investments in debt securities/ municipal debt securities/ securitised debt instruments are subject to risks including delay and/ or default in payment. Read all the offer related documents carefully.
624
