Home Equity Loan Fees vs. Mortgage Loan Fees: What Is the Difference?
You may know that to get extra money for homeowners, home equity loans and mortgage loans are the primary ways. Somehow people are hard to differentiate between these loans. There are several differences that you must know including home equity loan fees vs. mortgage loan fees. Check the details of it in the following paragraphs.
Home Equity Loan and Mortgage Loan: What Are the Differences?
Also called a second mortgage, a home equity loan will help you to borrow the loan using the equity of your home or property. In this second mortgage, you will get the current value of the house minus your existing mortgage. Some lenders can get up to 80% loan from their home’s equity.
Meanwhile, the mortgage is the loan you may apply for first before a home equity loan. The total amount you can get in the mortgage is usually higher than a home equity loan. In terms of interest rates, the mortgage will have a lower interest rate. The lenders can get up to 125% of their home’s value.
The use of home equity loans is commonly for home renovation projects, medical bills, education, and many more. However, the mortgage is used to purchase a home or property. Furthermore, in Annual Percentage Rates or APR, in general, mortgages have lower APR than home equity loans. However, this rate also depends on income and credit score
Home Equity Loan Fees
Talking more about home equity loan fees vs. mortgage loan fees, home equity loan has a lower fee than mortgages. Usually, it has 2% to 5% of the total amount of the loan. Its fee will cover some costs such as origination fees, credit report fees, appraisal fees, document and filing fees, title fees, and insurance costs.
For example, you have a home’s equity of $400,000 and owe $200,000 on the existing mortgage. When you take out a $100,000 home equity loan with a 2% fee, the amount you must pay for the fee is $2,000. Because each lender may give you a different percentage of the fee, it is better to compare several lenders before deciding to take your home equity loan.
Mortgage Loan Fees
In a mortgage loan, the fee charged is typically higher than in a home equity loan. It happens because the amount of loan in the mortgage is higher than the loan using the home’s equity. Commonly, the total fees of the mortgage are about 2% to 5% of the entire loan amount.
Almost the same as a home equity loan, the fees will cover several costs such as origination fee, appraisal fee, title services, and credit report fee. Other costs included in the fees are lender origination fees, the survey fee, and attorney fees for real estate transactions.
The Bottom Line
After understanding the explanation about home equity loan fees vs. mortgage loan fees above, now you must research your financing options before deciding the type of loan you will take. It is important to do to maximize the advantages of the loan benefits. Comparing multiple lenders is recommended as well to find the best deal for your loan. Thus, what loan will you take?
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