A mortgage is the most popular choice for people who are ready to own property, but it’s not their only option. Loans can be a fast way to rack up extra cash for a down payment or a small home. Researching the differences between the two can help you make the most informed financial decision for your future.
Which should you pick? Read on to find out the discrepancies between mortgages and loans.
How Do Mortgages and Loans Differ?
Most people use mortgages and loans interchangeably, but they’re not the same. Loans are unsecured, whereas mortgages use a person’s home as collateral; this means if you have a mortgage and you default on it, you can lose your house. However, loans aren’t better than mortgages and vice-versa.
Find out more information on mortgages and loans to determine which is best for you.
Loan Basics
A loan is money offered by a financial institution (typically a bank) to a borrower. When a borrower receives a loan, they become indebted to the lender; this means they’re responsible for paying interest on the loan until you repay it in full.
There are many types of loans, such as:
- Business loans
- Personal loans
- Federal loans
- Student loans
- Pay-day loans
- Co-sign loans
- Private loans
Here are a few loan benefits:
- Zero tax implications: You won’t have to pay income tax on the amount you borrow.
- No down payment: Most lenders won’t ask you to pay cash right away when you apply for a loan.
- Negotiate repayments: You may be eligible to negotiate your repayments if you’re experiencing financial problems.
What Is a Mortgage?
A mortgage is a type of loan granted by a lender to help an aspiring homeowner purchase a house. When you borrow one, you must repay the amount you’ve borrowed. Furthermore, you’ll have to pay interest rates. Once you purchase your home, it becomes collateral.
Mortgage advantages include:
- Low APR: APR, or Annual Percentage Rate, is your interest rate stated as a yearly rate. Understanding this rate can give you a better idea of how much you’ll pay to take out a loan. Since the loan is tied to your property, a lender might offer you a low APR.
- Pre-qualification: You can get prequalified and go house hunting with a clear idea of how much you’ll pay each month.
- Tax Advantages: You can deduct your mortgage points, interest, and real estate taxes when you file your federal and state taxes.
Which Option Is Suitable for Me?
The best option depends on your needs as a borrower. Mortgages are the most common option because they’re tailored for real estate. Moreover, it’s almost impossible to purchase a house with $100,000 or less, so some lenders will only allow you to use a loan as a down payment. Otherwise, you might find it difficult to pay for the rest.
Conversely, a loan can help you furnish your new house because they’re practical for home improvements and other major purchases.
Southeastern REI Can Help
Now that you understand mortgages and loans, you may feel ready to buy a new home. However, you must sell your current one first. If you live in Alabama, Georgia, or Tennessee, you can sell your house to Southeastern REI for a speedy, all-cash offer. We’re ready to buy your home, regardless of its condition. Contact us today.