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House cash advances and mortgages are asset-acquiring facilities that relieve an individual from making immediate lump sum payments. A house equity cash advance creates a debt against the borrower’s house. According to this cash advance, the borrower has equity in his or her house as collateral. ‘Collateral’, here, refers to assets or properties that create a debt obligation. In real estate, the borrower’s equity in an asset refers to the difference between the market price of a property, and the borrower’s house equity cash advance. Equity is the interest that a borrower pays on the cash advance.

A mortgage, on the other hand, is a process of using property as security for debt repayment. It is a legal device used for securing an asset. By arranging for mortgage, a borrower can acquire residential or commercial real estate, without the need to pay the full price right away.

picking between house cash advances and Mortgages:

- Most house cash advances require the borrower to have a very good credit history. Hence, individuals with an average credit history are likely to be denied this cash advance.

- ‘Closed-end house Equity cash advance’ levies a fixed rate of interest for a period of up to 15 years. The borrower receives a lump sum amount at the time of settlement, in the final steps of a transaction. No further cash advance can be given to the borrower once the final settlement of a real estate transaction is executed. The maximum amount of cash that can be given as cash advance to the borrower depends upon his/her income, credit history and appraised value of collateral, and other finance related information.

- ‘Open-end house Equity cash advance’ is a revolving credit cash advance that generally levies a variable rate of interest. The borrower can decide when and how frequently to borrow cash against the equity. This again is determined on the borrower’s good credit history, consistent income and other such criteria. This cash advance is available for a period of up to 30 years.

- Mortgage cash advances are of two types: Fixed Rate Mortgage (FRM) and Adjustable Rate Mortgage (ARM). Individuals can pick between the two depending upon their requirements, and the capability to repay cash advances.

- FRM has a fixed rate of interest, and a fixed amount of monthly payments towards the cash advance amount. The term of FRM can be for 10, 15, 20 or 30 years. However, some lenders have recently introduced terms of 40 and 50 years.

- ARM interest rate is fixed for a period of time (generally 15 and 30 years), after which it is adjusted according to the market index. ARM interest rates are adjusted periodically on a monthly or yearly basis. The initial rate of interest in ARM is levied in the range of 0.5% to 2%.

- Lenders sanction an ARM cash advance depending upon a borrower’s credit report and credit score. They prefer to approve cash advance to borrowers with high credit scores, because low credit scores indicate greater risk of cash to lenders. In order to compensate for this increased risk, lenders levy a high rate of interest on cash advances approved for less creditworthy borrowers.

- ARM cash advances prove useful to borrowers who own a lot of equity on their house. ARM cash advances relieve a borrower from heavy monthly payments, and provide them the flexibility to pick the kind of payment to make every month. These cash advances have a fixed amount of minimum payment to be made every year for 5 consecutive years.

Prospective borrowers should gauge their options carefully before picking a cash advance. A well-calculated move can save a great amount of cash over the term of the cash advance.