Compare personal loans vs. mortgages

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Learn the big differences and how you can use each to invest in your next home.

A mortgage is by far the most common choice when you’re ready to buy a house, but that doesn’t mean it’s your only option. Personal loans can be a quick way to drum up extra cash for a down payment or a smaller home. But which should you choose? Sorting through mortgages and personal loans may not be the American dream, but it’s a crucial party of understanding the best financial choice for your future.

How do personal loans differ from mortgages?

There are two major differences between personal loans and mortgages. A personal loan is unsecured, whereas a mortgage uses your house as collateral — if you default on a mortgage, you could lose your home. A personal loan is also for a much smaller amount, which makes it difficult to buy a house with one. Instead, a personal loan is better suited for other costs, like improvements after the house is purchased and new furniture to decorate your space.

The main differences between personal loans and mortgages

Personal loanMortgage
Interest rateVaries by lender, usually between 3.99% to 36%Varies by lender, but can start as low as 3.2% for a fixed-rate mortgage
Maximum loan amountUp to $100,000, depending on the lender and your eligibilityHigh-cost area limit goes up to $954,225 for a single unit
Loan termTypically between 1 to 7 yearsTypically 15 or 30 years, but can be as short as 10 years or as long as 50 years
Repayment frequencyUsually monthly repaymentsUsually monthly repayments

Compare personal loan and mortgage options

Updated October 19th, 2019
Name Product Filter Values APR Min. Credit Score Max. Loan Amount
3.84% to 35.99%
Good to excellent credit
$100,000
Get loan offers from multiple lenders at once without affecting your credit score.
Varies by lender
Available for all credit scores
$100,000
Get connected with a lender — or get debt advice.
6.49% to 17.99%
650
$25,000
With over 80 years of lending experience, this credit union offers personal loans for a variety of expenses.
6.98% to 35.89%
620
$50,000
Affordable loans with two simple repayment terms and no prepayment penalties.
3.99% to 35.99%
500
$100,000
Quickly compare multiple online lenders with competitive rates depending on your credit.
34% to 155% (Varies by state)
550
$10,000
Check eligibility in minutes and get a personalized quote without affecting your credit score.
6.95% to 35.89%
640
$40,000
A peer-to-peer lender offering fair rates based on your credit score.
4.99% to 35.99%
Good to excellent credit
$100,000
Get personalized rates in minutes and then choose a loan offer from several top online lenders.
3.84% to 35.99%
550
$100,000
Get connected to competitive loan offers instantly from top online consumer lenders.
5.99% to 17.66%
680
$100,000
No fees. Multiple member perks such as community events and career coaching.

Compare up to 4 providers

Name Product Min. credit score State availability Loans offered
620
Not available in: HI, NY
Purchase, Refinance, Jumbo, HELOC, FHA, VA, USDA, Reverse
Loan officers work with you to find the right mortgage to fit your lifestyle and budget.
620
Not available in: AZ, HI, IN, MO, NV, NY, RI, UT, WA, WV
Purchase
Get personalized rates in minutes and then choose a home loan offer from several top online lenders.
620
Available in all states
Purchase, Refinance, Home Equity, HELOC, Jumbo, Reverse, FHA, VA, USDA
Connect with vetted home loan lenders quickly through this online marketplace.
620
Not available in: HI, MA, NV, NY, ND, UT
Purchase, Refinance, Jumbo, Fixed, Adjustable, FHA, VA, USDA
Explore financing options and home shopping services all on the same website.
620
Available in all states
Purchase, Refinance, Jumbo, Fixed, Adjustable, FHA, VA, USDA
Flexible options, fast approvals and support online backed by a trusted brand.
620
Available in all states
Purchase, Refinance, Jumbo, FHA
A subsidiary of CIT Group, CIT Bank is a direct lender that offers a variety of mortgage loan options.
620
Available in all states
Purchase, Refinance, Jumbo, FHA, VA, USDA
Streamline your mortgage from quote to final payment — all from your computer or phone.
620
Available in all states
Purchase, Refinance, Jumbo, HELOC, FHA, VA, USDA
A national lender that offers the full selection of mortgage products.

Compare up to 4 providers

What are the benefits of personal loans and mortgages?

Personal loans

  • No tax implications. You won’t be charged income tax on the amount you borrow unless the debt is forgiven by the lender.
  • No down payment. Unlike mortgages, many lenders don’t require you to provide any cash up front when you apply for a personal loan.
  • Negotiate repayments. You may be able to negotiate your repayments if you’re facing financial hardship or an emergency.

Mortgages

  • Lower APR. Because the loan is secured with your property, lenders are more likely to offer a low APR.
  • Prequalification. You can get prequalified and go house shopping with a clear picture of what you’ll be paying every month.
  • Tax advantages. You can deduct your interest, mortgage points and your real estate taxes from your yearly income tax calculations.

What are the drawbacks of personal loans and mortgages?

Personal loans

  • Short repayment terms. Most lenders have repayment terms lasting one to seven years.
  • High interest rates. Since you’re not providing collateral, you’ll likely have a higher interest rate and will need to pay proportionately more in interest over the life of your loan.
  • Small loan amounts. You’ll only be able to borrow $100,000 if you have impeccable credit. Otherwise, your funding will be limited.

Mortgages

  • Foreclosure. If you fail to make payments and default on your mortgage, you may face foreclosure and lose your home.
  • Amount paid. Despite low interest rates, mortgage loan amounts tend to be very large. This means that by the end of your repayment period, you’ll likely have paid tens of thousands of dollars in interest alone.
  • Payment fluctuations. With an ARM, the payments you make can fluctuate drastically depending on the market.

Which borrowing option is better suited for me?

The better option will depend on your needs as a borrower. Mortgages are the most common option because they’re meant for real estate. You’ll have the choice between a few different options, including mortgages with fixed rates and other mortgages that change with the financial environment. In addition, buying a home outright on $100,000 or less is nearly impossible in most parts of the country. Some lenders will allow you to use a personal loan as a down payment, but otherwise, you’ll have a hard time covering the costs of a purchase.

However, if you’re looking to fill that new home with some furniture, a personal loan is an option to consider. Personal loans can be used for many purposes, which makes them useful when it comes to home improvements or other big purchases.

Using a personal loan as a down payment

Generally, you won’t be able to use a personal loan as a down payment because lenders will ask for proof that you have the funds available to pay yourself. However, if you have no existing debt, some lenders may allow you to use a personal loan and consider it in your debt-to-income ratio when reviewing your application.

If you can’t afford a down payment and won’t be able to use a personal loan, there may be a first-time home buyer program available in your state to help you afford the down payment.

What’s the difference between a personal loan or a remortgage?

Remortgage is another term for refinancing, which is the process of paying off your current mortgage with a second mortgage through a new lender, usually at a lower interest rate or with better terms. Unless you only owe a small amount on your current mortgage and have excellent credit, a personal loan likely won’t be a comparable option.

A remortgage is ideal for specific goals — like lowering the monthly payments on your house or switching from an ARM to a fixed-rate mortgage — while a personal loan is designed to cover costly purchases without restrictions. Approval for both usually depends on a decent credit score and a positive credit history.

Compare personal loans to even more borrowing options

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Personal loan vs. Home equity loan
Personal loan vs. 401(k) loan
Personal loan vs. Business loan
Personal loan vs. Student loan
Personal Loan vs. Home equity line of credit

Bottom line

Personal loans can be good for a wide variety of things, but they’re not necessarily the best for funding the purchase of a home. Mortgages are exclusively used for purchasing real estate and can generally offer you better terms. Before you make any big financial commitments, you should talk with a financial advisor and compare your options. Whichever you choose, have your finances in order and understand the full impact of each type of loan when you apply.

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2 Responses

  1. Default Gravatar
    JenniOctober 9, 2017

    My home has an approximate market value of $350,000 and I have a personal loan of $32 000 at 16% interest payable over 5 years. Would it be better to have a $32 000 mtge at 4.5% interest – considering that the interest may change and that legal fees are involved? Thank you for helping.

    • Avatarfinder Customer Care
      MariaOctober 10, 2017Staff

      Hey Jenni,

      As finder is a financial comparison website providing general information, we are not permitted to provide our users with personalised financial advice or make product recommendations.

      You may want to read this page on our Complete Guide to Comparing Home Loans that discusses the fees involved.

      Also, this page from our Australia site may be of help to you as it discusses Fixed VS Variable Interest Rate Home Loan may give you an idea on which type you’d like to go for.

      You might want to confirm the cost of the mortgage from the lenders directly though. At the end of the day, it would be upon your discretion on which one would be best.

      Before applying, please ensure that you meet the eligibility criteria and requirements and to read the details, as well as the relevant Product Disclosure Statements/ Terms and Conditions of the option before making a decision and consider whether the product is right for you.

      Best,
      Maria

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