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A personal loan is an unsecured loan used for a variety of purposes, while a mortgage is secured by a loan specially used to buy or refinance real estate.
The decision between a personal loan and a mortgage will ultimately fall for what you need for money. Although a personal loan can be used for any purpose, such as debt consolidation or unexpected expenses, they are often accompanied by high interest rates. On the other hand, the mortgage is specially for the purchase of real estate and uses a home collateral.
There are more differences between the two financial products, and depending on the situation, you can discuss which one is a better option. We dive deeper into the differences between personal loans and mortgage loans, offer everyone's pros and cons, and give the advice of a knowledgeable mortgage customer to decide on the two.
What is a personal loan?
A personal loan is a type of loan that you can borrow from a bank, a credit union or a web lender for any purpose, such as debt consolidation, payment of treatment, financing home removal or unexpected financial emergencies.
Personal loans are usually unsecured, which means that they do not require a guarantee such as a car or a house. Instead, lenders appreciate the creditor's creditworthiness based on their credit score, income, employment history and debt and debts. The interest rates for personal loans may vary depending on the borrower's creditworthiness and the lender's terms.
“The speed is usually higher [than a mortgage] And can rise up to 36%, ”says Pahm Foxley, Wasatch Piasch Peak Vice President of the Credit Union Mortgage Loan.” Compared to a mortgage loan, the approval period for a personal loan is faster. ”
Personal loans are usually repaid in a fixed monthly amount of time, which may range from a few months to several years. Loan terms, including interest rates, repayment period and loan amount, shall agree between the lender and the borrower before the loan payments.
Advantages
- Flexibility: You can use a personal loan for any purpose.
- Easy to get: Personal loans usually have flexible requirements and some lenders specialize less than working with the perfect credit borrowers.
- Fast funding: Some lenders offer the next day's loan funding, so if you have an emergency, you will get your money sooner than later.
Disadvantages
- Higher interest rates: Prices vary depending on the lender and your credit score, but personal loans have higher prices than other types of loans.
- Short Refund Terms: Usually you have only a few years to pay a personal loan that payments may be steep.
What is a mortgage?
A mortgage is a loan used to buy a loan. These loans are also referred to as the property you have purchased as mortgage loans or home loans. In other words, if you stop paying a mortgage, your lender can close your home and sell it to pay your mortgage balance.
There are two main types of home loans: government -backed mortgages and conventional mortgages. Examples of government -backed mortgage loans are the Federal Housing Agency (FHA), the US Ministry of Agriculture (USDA) and veteran affters (VA).
There are two types of conventional mortgages:
- Corresponding loans: Corresponding loans comply with the requirements of Freddie Mac and Fannie Mae, who buy a mortgage loan. These loans have boundaries.
- Non -valid loans: These loans are much more flexible. They do not have to meet specific requirements, so they differ from the lender. If you are considering a non -conforming loan, check out the conditions carefully and make sure you are happy with them.
Mortgage loans may also have private mortgage insurance or PMI. This insurance protects the lender if it closes your mortgage. In most cases, you have to pay for the PM if you make a deposit of less than 20% of the total mortgage. You may also have to pay the PMI when refinancing a new mortgage and your home has less than 20% of your equity.
Advantages
- Low interest rates: Mortgage loans have low interest rates compared to personal loans, credit cards and other types of loans.
- The terms of the long repayment: Longer refund terms mean that you have lower payments every month.
- Flexible credit claims: Although you may have to pay a higher interest rate, you can get a mortgage loan with 620 credit score (sometimes even lower).
Disadvantages
- Long loan process: It often takes several months or more to complete the mortgage process.
- May -Olla have to pay for pmi: Depending on your deposit you may need to pay PMI, which will make your monthly payments higher. The good news is that you can get rid of the PMI if you have paid up to 80% of the balance or more.
Personal loan vs. mortgage
| Personal loan | Mortgage | |
| Loan limit | Up to $ 100,000 | Up to $ 806,500 (to respond to single -family loans) |
| Average interest rates | About 12.36%but may in some cases go up to 36% | About 6.9% |
| Conditions | Two to seven years | Up to 30 years |
| Fees | The initiative fee equal to 1-5% of the total loan amount, late fees | CONTRACT COURT, EACHING FEE, EMPLOYING FEE, PENIALS, PUNS OF PAYMENT, OUT |
| Secured? | Usually no | Yeah |
How to choose a personal loan and a mortgage
Although personal loans and mortgages allow you to borrow money, both have a different purpose and requirement.
“A personal loan is an unsecured loan and therefore is a greater risk to the lender,” says Foxley. “These can be a great option if you only need a small loan amount.” However, the compromise is a higher interest rate, although you are likely to have a much faster cash than a mortgage.
“You will not allow any assets to get a personal loan and you can use any resources for any purpose,” Foxley adds.
The mortgage is intended for people who want to buy real estate and it ensures a home. They have lower interest rates, although it can take several weeks before you are approved.
Why should you trust us
Benzinga has offered investments and mortgage advice to more than a million people. Our experts include financial professionals and homeowners, such as the writer of this piece Anthony O'reilly. Anthony is a former journalist who won awards for his New York urban economy coverage. He has navigated complex real estate markets in New York, Northern Virginia and North -Carolina.
For this story, we worked with the Vice President of the Mortgage Loanen with Foxley Wasatch Peak Credit UnionTo.
Frequent questions
A
It depends. A personal loan has a much faster turning time than a mortgage and can be used for any purpose, but it is accompanied by a much higher interest rate and a shorter repayment period.
A
Monthly payments for a personal loan of 5000 -Dollaris depend on its deadline and interest rate. A loan of this size at a 12% interest rate and a seven -year term would cost about $ 88 a month.
A
The main disadvantages of a personal loan are that they have high interest rates and a shorter refund period than a mortgage. On the light side, the tools can be used for any purpose and are approved much faster than a home loan.
Sources
- Pahm Foxley, Vice President of Mortgage Loans Wasatch Peak Credit Union
- “FHFA announces in accordance with 2025 corresponding loan restriction values,” the Federal Housing Agency
