Home equity loans from mortgage company or bank?

Different lenders have different rates and plans; shop around

Buying a house or borrowing against one by taking out a home equity loan or line of credit is an expensive task. Houses aren’t cheap; most people will spend most of their lives paying for one. And borrowing against one isn’t cheap, either. Millions of Americans have borrowed against the equity in their homes over the past few years as prices, and corresponding equity, have risen into the stratosphere.

But just as you wouldn’t buy the first house you see, you also probably shouldn’t take the first loan available to you. When seeking a mortgage or home equity loan, you should shop around and try to find the best deal. Failing to do so could cost you tens of thousands of dollars over the life of the loan, and you don’t want to do waste that kind of money.

There are several different places you could go to take out a loan; the most common are banks and mortgage companies. There are advantages and disadvantages to each, as we shall soon see.

Both banks and mortgage companies are in the business of handling money, but for banks, lending is only a portion of what they do. They also handle savings and checking accounts as well as lending of other types, such as for auto or recreational vehicle loans. Mortgage companies, on the other hand, only lend money for housing. They are pretty focused.

Because banks tend to do a number of things in addition to lending for houses, your local bank probably has only a few types of housing options available. They can probably make a 15 year or 30 year, fixed-rate loan available to you, and they may offer a couple of adjustable rate loans. On the other hand, your bank may be able to provide better service to you, especially if you are long time customer or are well known to bank personnel. Customers are more likely to be known at their bank, where they do business regularly, than they are at a mortgage company, where they may do business only once. Familiarity may help. 

A mortgage company, on the other hand, just specializes in home loans. As such, they will probably offer a greater variety of lending options, including exotic types of adjustable rate loans and loans requiring no down payment. Rates may be a bit better than at banks, particularly if competition in your area is great. A mortgage company may be a bit more flexible in terms of whether or not you will qualify for a loan at all, and they may have additional lending options available to you if your credit is less than perfect. Such options come at a price, of course, as interest rates and fees will increase as your credit score decreases.

There is no quick or easy answer to whether or not you should borrow from a bank or a mortgage company. One person may find that a bank works best for them and another may find that a mortgage company suits them better. There are may types of customers who need many types of loans. As such, there is no right answer to the question of “Where should I borrow?”