What is the Difference Between a Mortgage and a Home Equity Loan?

Suppose you are looking to take out a loan or second mortgage on your property to free up some additional money for home improvements, a new car or something luxurious. In that case, you may be wondering which option is best for you, a second mortgage or a home equity loan. 

A second mortgage is a loan secured against your property. The total value of mortgages against your home is usually 80% of its value, so the lender will only lend you up to that amount. Your house also secures a home equity loan, but it doesn’t have any limit on how much money you can borrow.

Mortgages are more popular because they offer lower interest rates and extended repayment periods than home equity loans. Interest rates on a home equity loan can be a lot higher than a standard mortgage deal.

What is a Bridging Loan?

A bridging loan (also known as a Bridge Loan) is a short term loan that helps you bridge a gap in finances, for example purchasing a house before you have sold your current one. They are also ideal if you are purchasing a property via an auction and need the money immediately, again before selling your own home.

There are two types of bridging loans, an open one and a closed one.

A closed bridging loan has a fixed date for repayment and tends to be used when you have exchanged contracts on a property but are awaiting the sale of yours to complete.

An open bridging loan has no fixed repayment date but lenders expect the repayment to be made within 1 year.

When taking out a bridging loan your home becomes security in case you default on the payments.

Bridging loans are paid off monthly and have a higher interest rate than mortgages.