What Is the Difference Between a Loan and a Mortgage?
A loan is a contract where a debtor ("borrower") borrows from a creditor (“lender”). The lender transfers money and the borrower agrees to return the principal (which is equal to the initial amount borrowed) with an added interest, in installments over time or in a single payment at the end of a loan period.
In other words, a loan allows the borrower to take money from a lender and use it immediately for a certain purpose, but requires the borrower to pay back extra money to the lender as the cost of using the lender's money.
A mortgage is a type of loan; where it differs from other loans is that a mortgage is secured by property as collateral. This means the mortgaged property must be used to pay the lender back if the borrower cannot repay the loan.
Because a mortgage uses property as collateral whereas typical loans may not, mortgages are generally less risky to lenders. Lenders always have the opportunity to collect repayment on the loan because they will always be able to seize the mortgaged property if the borrower does not have money.
Borrowers also benefit from a mortgage, because mortgages tend to feature a lower amount of interest and more relaxed repayment terms for interest and principal. Another advantage of a mortgage over a typical loan is that borrowers usually can borrow more money because the mortgage is secured by real property.
- What Is a Mortgage?
- What Type of Loan Should I Get for My Home?
- What Are the Different Types of Mortgage Loans?
- What Is the Process of Applying for a Mortgage?
- What Is the Difference Between a Housing Loan and a Mortgage Loan?
- What Is the Difference Between Government-Insured Loans and Conventional Loans?
- What Is a Down Payment?
- How Much Down Payment Will I Need to Provide?
- Are There Any Mortgage Loans with No Down Payment?
- What Is an Escrow Account?
- What Is Home Equity?
- How Do Mortgages Work?
- Where Can I Get a Mortgage?
- What Should I Look for in a Mortgage?
- Should I Pay My Mortgage Early?
- What Is the Average Mortgage Length?
- What Are the Advantages of a 15-Year Mortgage over a 30-Year Mortgage?
- What Are the Advantages of a 30-Year Mortgage over a 15-Year Mortgage?