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You’ll likely hear the terms home loan and mortgage used interchangeably, but the phrase “home loan” is an umbrella term that covers a variety of mortgages, home refinances, and home equity loans.

It’s helpful to understand the difference between a typical mortgage, used to buy a home, and the larger universe of home loans, which are sometimes used to tap the equity you’ve gained.

What Is a Mortgage?

Let’s get this straight: Mortgages are home loans, used when buying a home or other real estate. When you take out a mortgage, your lender is loaning you the money you need to purchase a home in exchange for charging you interest. You’ll repay the loan and interest in monthly installments.

Mortgages are secured loans, meaning the property is used as collateral. If you fail to make mortgage payments, your lender can foreclose on the home to recoup its money.

In order to take out a mortgage, you’ll typically need to make a down payment equal to a percentage of the purchase price. Your down payment is the portion of the cost of the home that you aren’t financing and provides immediate equity in the property.

Buyers may put down 20% on conventional mortgages to avoid private mortgage insurance (PMI), but many buyers put down much less. In fact, the median down payment for all homebuyers was 18% in 2024, according to a National Association of Realtors® report. A mortgage calculator can help you determine what effect the size of your down payment will have on your monthly payments.

When shopping for a home, you can seek mortgage preapproval. After investigating your financial history, your lender will provide you with a letter stating how much money you can likely borrow and at what mortgage rate.

Types of Mortgages

There are several types of mortgages available. Mortgage insurance, in the form of PMI or mortgage insurance premiums (MIP), may be part of the deal. It’s good to understand PMI vs MIP.

•   Conventional mortgages are funded by private lenders like banks and credit unions. They are not backed by a government agency. You’ll typically need to pay PMI if you don’t make a 20% down payment; mortgage insurance is canceled when 22% equity is reached. Conventional conforming loans adhere to lending limits set each year by the Federal Housing Finance Agency.

•   Jumbo loans are mortgages that exceed the lending limits set for conventional loans. So a jumbo loan is a “nonconforming” loan. Conventional lenders issue jumbo loans, and the U.S. Department of Veterans Affairs guarantees a VA jumbo loan, possibly with no down payment.

•   FHA loans are made by private lenders and guaranteed by the Federal Housing Administration. You may qualify to make a down payment of as little as 3.5%. Upfront and annual MIPs are required, usually for the life of the loan.

•   USDA loans are backed by the U.S. Department of Agriculture and help low- to moderate-income households buy property in designated rural and suburban areas. No down payment is required. An upfront and annual guarantee fee are required. (Note: SoFi does not offer USDA loans at this time, but we do offer FHA and VA loans.)

•   VA loans are designed for active-duty and veteran military service members and some surviving spouses. VA loans don’t require a minimum down payment in most cases. There’s no MIP; there is a one-time funding fee.

What Is a Home Loan?

If a friend tells you they have a home loan, there’s a very good chance they are talking about the mortgage they used to purchase their home. But there is also a chance that they are referring to a home equity loan. As you ponder what is a mortgage vs. a home loan, it helps to get to know the home loans that aren’t purchase mortgages.

Types of Home Loans

A home equity loan is technically a second mortgage — assuming a homeowner is still paying their first mortgage. Home equity loans allow homeowners to borrow against the portion of their home they own outright. As with typical mortgages, home equity loans are secured using the home as collateral. But if an owner falls into foreclosure, in the home loan vs mortgage loan equation, the mortgage lender would be paid from the proceeds of the sale before the home equity loan lender.

The amount you’re able to borrow will be determined by a few factors, including your credit history and how much equity you’ve built — in other words, the current value of your house less any outstanding debt. The borrower may pay closing costs based on the loan amount.

It’s common for lenders to allow you to borrow up to 80%-85% of the equity you’ve established. The loan arrives in a lump sum. You repay the home equity loan with interest over a set period of time. If you miss payments, your lender can foreclose on the house.

A home equity loan is not to be confused with a home equity line of credit, or HELOC. A HELOC is also a second mortgage; your home equity is collateral. But it functions somewhat like a credit card. Rather than receiving a lump sum, you have a revolving line of credit and can borrow and repay the debt repeatedly as needed during a given time period — typically a decade.)

Another form of home loan is a cash-out refinance. In this case, a homeowner takes out a new loan to pay off their old one, but they also borrow a lump sum at the same time. What they can borrow is based on — you guessed it — their home equity.

Similarities Between a Home Equity Loan and a Mortgage

When you apply for a mortgage as part of the home-buying process, or when you seek a home equity loan as a homeowner, lenders will look into your financial history to help them establish terms and the interest rate for the loan. For example, they will examine your credit reports, often awarding more favorable terms and interest rates to those with higher scores. Mortgages and home equity loans are both secured loans. Both types of loan also usually involve an appraisal of the property that will secure the loan.

Differences Between a Home Equity Loan and a Mortgage

A mortgage must be used to purchase a specific property — or in some cases to purchase the property and make necessary renovations. There are fewer limitations on the money received from a home equity loan. Some borrowers use funds from a home equity loan or cash-out refi for renovations. Others use the money to pay off higher interest debt or send a child to college.

Mortgage interest can often be deducted if homeowners itemize their deductions. However, you can only deduct interest on a home equity loan if you use the loan to buy, build, or substantially improve your main or second home. So if you want to buy a boat, that deduction won’t hold water. Consult a tax advisor before you count on any type of deduction.

When You Should Consider a Mortgage

If you don’t have the cash to buy a home outright, you will have to finance the purchase with a mortgage. However, there are some considerations you may want to take into account. For example, the larger your down payment, the more equity you will have in your home and the smaller your monthly mortgage payments will be.

Because you have more equity in the home, the lender will see you as less risky. As a result, larger down payments also tend to translate into lower interest rates. So, consider putting down as much as you can afford to.

Also, even if you have the cash to pay for a home in full, you may consider a mortgage anyway. You may not want to tie up cash that could be used for other purposes, such as in an emergency. You may be able to invest that money and earn a return that’s higher than the interest rate you’d pay on the loan.

When You Should Consider a Home Loan

Many people choose to take out home equity loans to make home improvements. That can increase the value of your home, putting you ahead if you ever choose to sell.

You may also consider a home equity loan when consolidating other debt, including high-interest credit card debt. The average interest rate for a home equity loan remains significantly lower than the average credit card rate. As a result, it can make financial sense to pay off the more expensive debt with a new, cheaper loan.

There are times when a HELOC is preferable to a home loan: If you need funds but don’t need a huge sum all at once, or if you aren’t sure exactly how much you might need, you can borrow in increments with a HELOC and only pay interest on the portion of the credit line that you are actively using.

The Takeaway

A mortgage is one type of home loan, but it’s not the only type. There are other ways to borrow money using a home as collateral. A mortgage gets you into a new home, but a home equity loan or HELOC could help you fund a new kitchen or cover another big expense. Whether you’re looking for a mortgage, another type of loan, or a refinance, it’s always a good idea to compare rates and terms.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

Why is a home loan called a mortgage?

“Mortgage” comes from the old French mort gage, meaning a death pledge — a morbid origin for the pledge you make to a lender to pay back the money you borrow.

Is a mortgage cheaper than a home loan?

Mortgages are a type of home loan. Your interest rate will depend on the type and size of your loan, your down payment, and your financial history, such as your credit score.

Can I use a home loan for reasons other than buying a home?

There are some circumstances when a home loan can be used for a reason other than making a purchase. Certain mortgages allow you to buy a home and make renovations to the property. And if you borrow based on your home equity — via a home equity loan, home equity line of credit, or cash-out refinance — you can use the funds for whatever purpose you wish.

Do home loans have lower interest rates than mortgages?

A mortgage is a type of home loan, but there are also other loans, such as home equity loans, that allow you to borrow against the equity you have built up in your home and that use your home as collateral. These loans often have a lower interest rate than an unsecured loan, such as a personal loan, but they typically still have a higher interest rate than a purchase loan. Exactly how rates compare will depend on how much you borrow, your credit score, and other factors.

Are there tax benefits for home loans vs. mortgages?

The potential tax benefits of a mortgage or other type of home loan such as a home equity loan are essentially the same. In 2025, the mortgage interest deduction allows taxpayers who itemize to count interest they pay on a loan related to building, purchasing, or improving a primary home against their taxable income, lowering the taxes they owe. The tax deduction also applies to mortgage interest paid on a residence. Consult a tax advisor to learn how this deduction might apply in your specific situation.

Can I refinance a home loan into a mortgage or vice versa?

A mortgage is a type of home loan, so homeowners who refinance a mortgage typically emerge from the process with a new mortgage. Those who undertake a cash-out refinance get a new mortgage that pays off their first loan and leaves them with a lump sum of cash to use as they wish, such as on a renovation project.

Photo credit: iStock/Brandon Ruckman

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SOHL-Q225-012

Margin trading and options trading are two strategies that incorporate leverage, which investors may use when investing in the financial markets. But they are quite distinct, and each strategy uses leverage in a different way.

Margin trading refers to the use of borrowed funds to place bigger securities trades than investors can afford with available cash.

Options are a type of derivative, where the option contract represents shares of an underlying security. Trading options can also be a type of leveraged trade, because an investor can control a large position with a relatively small investment via the premium (the cost of each option contract).

In some cases, you need a margin account to provide collateral for certain options trades. But with some options strategies the underlying stock can serve as collateral.

Depending on the types of trades involved, both margin trading and options trading have the potential for bigger gains, but these strategies entail the potential for steep losses — including the possibility of loss that exceeds the initial investment.

Options Trading vs Margin Trading

Options trading and margin trading have some similarities, although they are fundamentally different in most ways.

Similarities

Here are some similarities between margin trading and options trading:

•   Leverage: Both options trading and margin trading allow you to use leverage to amplify your position, though in different ways.

•   Higher risks and rewards: Both strategies can yield higher returns if the trades move in the right direction, but they also carry the risk of losses that can exceed your initial investment, in some cases.

•   Requires broker approval: Margin and options trading both require additional account approvals, since these strategies come with significant risk exposure.

Differences

Here is a look at the differences between options trading and margin trading:

•   Fundamentally, options are a type of security. Margin is a strategy for using debt (i.e., margin loans) to buy more shares — it’s not a type of investment.

•   How leverage is achieved:

◦   Margin allows you to borrow money to purchase more securities than you could with cash.

◦   Options are derivatives contracts that represent 100 shares of the underlying stock or security, for the price of the contract (a.k.a. the premium), which is a smaller amount than the cost of owning the shares

Options Trading and How It Works

Options are financial derivatives that allow an investor to control shares of a particular security without needing the full amount of money required to buy or sell the asset outright.

The purchaser of an options contract has the right to buy or sell a security at a fixed price within a specific period of time, paying a premium for that right.

There are two main types of options contracts: call options and put options. A call option gives the purchaser the right — but not always the obligation — to buy a security at a specific price, called a strike price. In contrast, the purchaser of a put option has the right — but again, not always the obligation — to sell a security at the strike price.

Buying and selling call and put options are two ways investors can potentially use leverage to accelerate their gains. And since options contracts fluctuate in value, traders can buy or sell the contracts before expiration for a profit or loss, just like they would trade a stock or bond.

Bear in mind that these investments carry significant risks, especially since you need to repay the margin loan, with interest, regardless of outcome.

Recommended: Options Trading 101: An Introduction to Stock Options

How Does Options Trading Work?

Suppose a stock is trading at $40 per share. If you buy the stock directly and the stock price goes to $44, you will have made a 10% profit.

However, you could also buy a call option for the stock. Say that a call option with a strike price of $40 for this stock is selling for a $1 premium. When the stock price moves from $40 to $44, the call option premium might move to $2. You could then sell the call option, potentially pocketing the difference between the price of the option when you sold it and what you paid for it ($2 – $1).

This example assumes the option price has increased. If the price decreases, you may incur a loss, which could include the entire premium paid.

There are many ways to trade options, depending on your outlook on a particular asset or the market as a whole. Investors can utilize bullish and bearish options trading strategies that target short- and long-term stock movements, allowing them to make money in up, down, and sideways markets.

Aside from speculating on the price movement of securities, investors can use options to hedge against losses or generate income by selling options for premium.

Recommended: How to Trade Options: An In-Depth Guide for Beginners

Pros and Cons of Options Trading

Here are some of the pros and cons of options trading:

Margin Trading and How It Works

Margin trading is an investment strategy in which you buy stocks or other securities using money borrowed from your broker to increase your buying power. This strategy can potentially enhance returns, but it can also magnify your losses.
In contrast, when you buy a stock directly, you pay for it with money from your cash account. Then, when you sell your shares, your profit (or loss) is based on the stock’s current price versus what you paid.

This traditional way of investing limits gains, at least compared to margin trading, but also curbs potential risk: you can only lose as much as you invest.

If you want to start trading on margin, you’ll likely need to upgrade the type of account you have with your broker. There are significant differences between a cash and margin account, and only qualified investors can access margin funds.

How Does Margin Trading Work?

After your broker approves you for a margin account, you can buy more stocks than you have cash available. Your broker will require both an initial margin amount and a maintenance margin amount.

Margin Trade Example

Here’s one example of how margin trading works: suppose that you have $5,000 in your account, and you want to buy shares of a stock that’s trading at $50 per share. With a regular cash account, you would only be able to buy 100 shares ($50 x 100 shares = $5,000).

If the stock’s price goes up to $55, you can close your position with a 10% profit.

With a margin account, you borrow up to 50% of the security’s price. If your broker has approved you for a $5,000 margin loan, you now have $10,000 in buying power; so you can buy 200 shares of the stock at $50 per share. If the stock’s price goes up to $55 in this example, your profits will be higher. You can sell your 200 shares for $11,000.

Then, after repaying your margin loan of $5,000, you still have $6,000 in your account, representing a 20% profit. (This hypothetical example does not include the cost of interest on the margin loan or any fees.)

But keep in mind that the increased leverage works in both directions. If you buy a stock on margin and the stock’s price goes down, you will have higher losses than you would if you just purchased with your cash account.

If you enter into a margin position and the value of your account drops, your broker may issue a margin call, and force you to either deposit additional cash or sell some of your holdings (if you fail to cover the shortfall, the broker can sell securities in your account to do so).

Pros and Cons of Margin Trading

Here are some of the pros and cons of margin trading:

How to Decide Which Is Right for You

Both options and margin trading can be successful investment strategies under the right conditions.

You may consider margin trading if you want to enhance your buying power with additional capital. If you want a type of investment with more flexibility, options trading might be suitable for you.

In either case, make sure you manage your risk so that you aren’t put in a situation where you lose more money than you are comfortable with.

The Takeaway

Options and margin trading are just two of the many investing strategies investors can consider when exploring ways to incorporate leverage. While investors are not able to sell options or covered calls on SoFi’s options trading platform at this time, they can buy call and put options to try to benefit from stock movements or manage risk.

Experienced traders may find either margin or options trading to be a worthwhile part of their portfolio, depending on their risk tolerance and goals.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

FAQ

Is margin trading better than options trading?

Neither one is necessarily better than the other. Both options trading and margin trading can make sense in specific situations. Remember that options are a type of derivative, which is a type of investment. Margin is a trading strategy that relies on debt to increase a position. The two can overlap because there are some options trades that require a margin account for collateral.

How much margin is required to buy options?

Margin is not required to buy or sell options contracts. However, you may use a margin loan to provide collateral for options trading, if it’s appropriate.

Are options trading and margin trading the same thing?

Both options and margin trading allows you to use leverage to potentially increase your returns, but they are not the same. Options trading involves trading options contracts, while margin trading involves borrowing money from your broker to make investments with more cash than you have in your account.

Photo credit: iStock/Just_Super