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Loan vs Mortgage – Difference and Comparison

A loan is a relationship between a lender and borrower. The lender is also called a creditor and the borrower is called a debtor.

The money lent and received in this transaction is known as a loan: the creditor has “loaned out” money, while the borrower has “taken out” a loan. The amount of money initially borrowed is called the principal.

The borrower pays back not just the principal but also an additional fee, called interest. Loan repayments are usually paid in monthly installments and the duration of the loan is usually pre-determined.

TRADITIONALLY, the central role of banks and the financial system was to take in deposits and use them to issue loans, thus facilitating efficient use of money in the economy. Loans are used not just by individuals but also organizations and even governments.

 

There are many kinds of loans, but one of the most well-known types is a MORTGAGE. Mortgages are secured loans that are specifically tied to real estate property, such as land or a house. The property is owned by the borrower in exchange for money that is paid in installments over time. This enables borrowers (mortgagors) to use property sooner than if they were required to pay the full value of the property upfront, with the end goal being that the debtor eventually comes to fully and independently own the property once the mortgage is paid in full.

This arrangement also protects creditors (mortgagees). In the event that a debtor repeatedly misses mortgage loan payments, for example, his or her home and/or land may be foreclosed upon, meaning the lender once again takes ownership of the property to recoup financial losses.

COMPARISON

LOAN

Relationship between lender and borrower. Lender is also called a creditor and the borrower is a debtor. Money lent and received in this transaction is known as a loan: the creditor has “loaned out” money, while the borrower has “taken out” a loan.

Open-end and closed-end loans, unsecured and secured loans, student loans, mortgage loans, payday loans.

MORTGAGE

Mortgages are secured loans that are specifically tied to real estate property, such as land or a house. The property is owned by the borrower in exchange for money that is paid in installments over time.

Fixed-rate mortgages, FHA mortgage loans, adjustable rate mortgages, VA loan mortgages, interest-only mortgages, reverse mortgages.

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