Mortgage / Equity

Equity
Home Equity
Mortgage
Equity Line of Credit Mortgage

There is a world of difference between an equity line of credit or home equity line of credit and a mortgage.

A mortgage is a loan secured by a piece of property which is usually used for real estate purchase. The lender adds interest to the loan and the mortgage is paid off in a series of payments spread out over a series of years. Each individual payment consists of a percentage of the mortgage principal plus the interest.

An equity line of credit is a line of credit backed by the equity in a piece of real estate. The difference between a line of credit and a mortgage is that with a mortgage you have to take all the money at once. With an equity line of credit you can borrow any amount of money you want up to a certain limit.

Unlike a mortgage an equity line of credit usually can not be used for the purchase of real estate. This means that there is no such thing as an equity line of credit mortgage.

Equity Line of Credit vs. Mortgage

Even though equity line of credit mortgages do not exist there are some similarities between an equity line of credit and a mortgage.

Like a mortgage an equity line of credit is secured by a piece of real estate. The difference is that a mortgage is usually initially backed by the entire value of a piece of property. The line of credit is backed by the equity which is usually a portion of the property’s value. Equity consists of that portion of a property’s value that exceeds the mortgage principal.

Many people get a line of equity credit in addition to a mortgage. Another big difference between an equity line of credit is that it can be used to pay for almost anything. Many homeowners use equity lines of credit to pay for home repairs, maintenance and remodeling.

To add to confusion there are mortgages that may contain a provision for an equity line of credit. It is possible to have a mortgage with an equity line of credit available but never possible to have a mortgage as part of an equity line of credit.

Mortgage and Equity Line of Credit

One reason why many people confuse mortgages and equity lines of credit is that an equity line of credit will increase what you owe on your home. Since it is backed by equity in your property an equity line of credit will increase your house payment.

If you don’t make payments on an equity line of credit your real estate will face foreclosure just as it would if you didn’t pay your mortgage. Many people end up facing foreclosure because they take out too many equity lines of credit on their homes.

Having too many equity lines of credit can decrease the amount of equity in your home and the amount of money you can borrow against it.