👉 The term "mortgage or equity loan" is a misnomer that has been misconstrued by many people for decades. Let's dissect the concept and its connotations.
Mortgage: The word mortgage typically refers to a type of debt financing where you borrow money to buy a house, but it's often used in a different context than this. Essentially, when someone buys property with a mortgage, they're essentially taking out a loan that allows them to pay back the principal amount over time. Equity Loan: The equity loan is another term for a mortgage, but it's used differently from traditional mortgages. In an equity loan, you borrow money as part of your purchase or construction of a home. Instead of paying the full purchase price upfront, you'll receive some form of collateral (like equity in the property) that will be used to pay back the remaining amount over time. For example: If someone buys a house with an equity loan, they might be asked to provide them with a piece of property as security. The owner would then take out a mortgage on the home and use the proceeds from the sale or lease to pay down this debt. This is akin to how someone takes out a mortgage that allows them to borrow money without actually purchasing their own property. This concept has been misconstrued for decades, leading to many people not understanding its true meaning in modern financial terms. It's important to clarify this terminology and ensure you understand the nuances of mortgages and equity loans.
