October 1, 2020

How is a Loan Different from a Mortgage?

What are a loan and a mortgage?

A loan is that amount of money which is lent to a borrower by the lender. Here the lender is called the creditor and the borrower is called the debtor. Thus loan is that money which is lent and received in this whole transaction. On the other hand mortgage is a type of loan which is a secured loan with a either a real estate or a personal property.

Understanding the concept of a loan and a mortgage

A loan is money which is lent or received between the lender and the borrower during the transaction. Here the money that is lent out is called principal. When the duration of the loan is complete, the borrower pays back not just the principle but also the additional money. This additional amount of money is the interest that is generated on a specific rate of interest. Now the rate of interest here is decided by the lender who is lending out the money to the borrower. Now the repayment of the loans is usually done on the monthly basis in several installments. Also the time till which the loan will be applicable is usually pre-determined.  Now usually this process is carried by banks or other authorized financial institutions. This ways the efficient flow of economy in the market could take place. Now these loans are given to anyone be it any financial institutions or any individual. Sometimes even the government can borrow loans.

Now let’s come to mortgage. There are many type of loans that are lent. Out of them, one if the mortgage. The mortgage is those secured loans which are associated specifically to the real estate for example a property like a house or a land. The borrower own this property an in exchange of it, it pays the payment of it in the form of installments.  Here the borrower is called the mortgagors. So the mortgagor is allowed to be able to use the property sooner than the case in which they could only have an access to this property once they paid the full amount of the loan which may have taken a little more time. Also this type of loan also provides security to the debtor. Here the debater is known as the mortgagees. So in any case in which if the mortgagor is unable to pay the loans or misses the payment schedules which are in the form of installments time and again, the lender can then legally take back the ownership of the land so that they can recoup for all of their financial losses.

Types of loans and mortgages

The loans can be primarily classified in to the categories which are-

  1. Open end loans and close end loans
  2. Secured and unsecured loans
  3. Mortgage loans
  4. Payload loans

While the mortgage can be classified as –

  1. Fixed-rate mortgages
  2. FHA mortgage loans
  3. Adjustable rate mortgages
  4. VA loan mortgages
  5. Interest-only mortgages
  6. Reverse mortgages


Thus there is a difference between both the types of loans. The simple loans can be given for any purposes but the mortgage is only related to the loans taken for property.

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