The Difference Between Home Loans and Mortgages

At some point, you may find yourself needing to borrow money for a large purchase, such as a home, remodel, vehicle, or a child’s education. Or, you may be looking at eliminating several smaller loans, like credit card debts. As a homeowner, you have a great asset to leverage and may want to learn more about the differences between mortgages, home equity loans, and Native American home loans to help you determine the best option for your specific needs. Although all of these options will allow you to borrow the initial amount of money you are seeking, you should know the differences between them before making your decision.

What is a Home Equity Loan?

A home equity loan is an agreement between you as a borrower and a bank or credit union as the lender, using your home equity as collateral. You start by determining what you need, then meet with a banker to determine your eligibility. The banker will review your credit, and, if approved, will offer you loan terms including interest rate, payment amount, and longevity of the loan. Monthly payments are typically a fixed amount and the overall loan is a set amount as well. Of course, you are required to already have a home for this type of short-term loan. Because the interest rate is higher than a mortgage, home equity loans are often used for short-term needs such as a home remodel, a large purchase, or college education needs, when it makes sense to do so.

The Difference Between a Home Loan and a Mortgage

Payment History Home loans are when you borrow money to buy a home and a Native American mortgage is a legal document lining out how the funds will be paid back. Home loans are only issued on residential properties, and offer adjustable or fixed rates, and fall into one of four categories: Conventional, Conforming, Non-conforming, and Government. Conventional home loans have higher rates because they are insured by a mortgage company, unlike Government-backed home loans with lower rates but specific qualification guidelines. Conforming and non-conforming loans have to do with whether or not there are loan limits and other guidelines set by Freddie Mac or Fannie Mae.


Mortgages are also a loan, but the value of the property, not the equity, is the collateral. This means a default or lack of payment on this loan can result in foreclosure. Mortgages are only for real estate, whether private or commercial and are considered “secure loans” as they are backed by the government or a mortgage company. The interest rate tends to be lower on a mortgage than other types of loans, and they offer the longest terms – typically 15-30 years. Like other loans, each month a set payment is made that includes the principal (the amount borrowed), plus interest. However, unlike other loans, many mortgages also require PMI or private mortgage insurance until you have built 20% equity in the home. This payment would also be made with your mortgage payment.


Understanding different loan types, and the differences between a home loan and a mortgage, you can now speak with a home loan specialist who can help you get the right loan for your needs. Give us a call today to learn more.