Mortgages and loans, is there a difference? What qualifies as one or the other? And how are they similar and different?
These are all questions that we all have at one time or another. Let’s take a look at the definitions and differences between home loans and personal loans.
What is a Loan?
Investopedia defines the word loan as “a type of credit vehicle in which a sum of money is lent to another party in exchange for future repayment of the value or principal amount.” In most cases, the lender will add interest to the principal. Here are some essential terms and common examples of loans:
- Secured – Backed by collateral, the asset for which the loan is secured. A car loan is an example of a secured loan with the vehicle acting as the collateral.
- Unsecured – Loans that are not backed by collateral are “unsecured.” A signature loan is considered a loan that is not secured since there is no collateral to support it.
- Revolving – A loan that can be spent, paid back, and spent again is a revolving loan. Credit cards are a revolving loan as they do not have to be paid back at a specific point in time and can be paid off and spent again without starting a new line of credit.
- Term – Loans required to be paid back within a certain period of time are considered term loans. Car loans, student loans, and signature loans are all examples of term loans.
- Personal loan – unsecured loans and debt is what many financial institutions will refer to as a personal loan. Because the loan has no collateral to back it, the maximum amount for a personal loan is $100,000, according to Rocket Loans. A signature loan is what most people think of when the term “personal loan” is used.
What is a Mortgage?
Mortgages are a type of loan that provides funds to buy a house. It is a secured term loan that uses the home as collateral. A home loan typically comes with a term between 8 to 30 years, with 15-year and 30-year loans being the most common. The longer the term, the lower the interest rate. Like with all loans, there is a monthly payment that is charged for a mortgage. Since there is collateral at stake, failing to make monthly payments will result in the lending company taking back the house using foreclosure processes.
Personal Loans vs. Mortgages
Here are the main differences between a mortgage and a personal loan:
- A mortgage is only lent to purchase a home or property, while personal loans can be used to buy pretty much anything.
- Home loans have long-term options up to 30 years, whereas personal loan terms last between 1 and 7 years.
- A mortgage allows you to borrow more at a lower interest rate.
Sell Your OKC Home
Whether you’re needing some extra cash or are ready for a home, Sell Your OKC Home wants to buy your current home. We know that qualifying for mortgages and putting a down payment on a new home can be difficult when you’re in the middle of selling your home. That’s why we make the process easy by directly buying your Oklahoma City home with cash. Contact us to learn more and get your fair cash offer today!