Why are Most Personal Loans Much Smaller Than Mortgages and Home Equity Loans?

You can use personal loans and home equity loans for all sorts of things – consolidating debt,  financing big purchases, or even buying a lifetime supply of bubble wrap (probably not the wisest financial move, but, then again, stress relief is priceless). With so many similar uses, why are most personal loans so much smaller than mortgages and home equity loans? This article will explain everything you need to know.

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Understanding personal loans

Personal loans are a versatile form of credit that typically range in size from $1,000 to $50,000 and can be used in thirteen different ways, including: 

1. Consolidating debt 
2. Financing large purchases 
3. Covering unexpected expenses

A mortgage is a loan used to purchase residential property. They tend to be much bigger than personal loans and the median mortgage is around $400,000 in 2025. However, the size of a mortgage depends on the home that you are buying.

A home equity loan and a home equity line of credit (HELOC) are two forms of credit that are secured by the equity in your home (the percentage of your home that you own). Home equity loans and HELOCs can be used for things like:

1. Home improvements
2. Consolidating debt
3. Financing large purchases 
4. Covering unexpected expenses

Now, as a sharp reader, you probably noticed quite a bit of overlap between these two. So, what gives? How are all these loans different from each other?

One of the biggest differences is that personal loans tend to be unsecured while mortgages and home equity loans are usually secured. An unsecured loan means that it’s not backed by collateral, like a house or a car. A secured loan is backed by something of value.

Whether a loan is secured or unsecured plays a big role in how much money you can borrow and the interest rate that you’ll pay.

Learn More: Secured vs. Unsecured Loan: Which Should You Choose?

Average amount you can borrow: personal loans

For personal loans, home equity loans, and mortgages, the size of the loan you can borrow depends on factors like your income, your creditworthiness, and any other debt obligations that you may have.

Generally, personal loans can range from as low as $1,000 to as high as $100,000. However, the most common loan amounts fall in the middle, or between $40,000 and $50,000.  

For example, online lenders may offer loan rates ranging from 4% to 36%, catering to a broad audience from those with excellent credit to those with poorer credit profiles. Banks and credit unions typically have their own ranges, with banks averaging around 10.09% APR for a 36-month loan and credit unions offering an average APR of 8.95%. 

Understanding mortgages and home equity loans 

Mortgages are loans that are specifically used to purchase residential real estate properties. They are typically secured by the property being purchased, which means that if the borrower fails to make their payments, the lender can take possession of the property through a process called foreclosure.

Mortgages have higher borrowing limits compared to personal loans primarily because they are secured by the property being purchased. This means that the lender has a form of collateral to mitigate their risk, allowing them to offer larger loan amounts. The value of the property serves as security for the lender, reducing the risk associated with lending larger sums of money.

For example, let’s say you want to buy a house worth $300,000. With a mortgage, the lender may be willing to provide a loan of $240,000, which is 80% of the property’s value. This is because the property itself acts as collateral, giving the lender more confidence in offering a higher borrowing limit.

Average amount you can borrow: mortgages and home equity loans

For mortgages, the loan amount is largely determined by the home’s purchase price and the buyer’s down payment, creditworthiness, and income. Typically, buyers can finance a home purchase up to the conforming loan limit, which for 2024 is $766,550 in most of the U.S., but higher in certain high-cost areas. 

Home equity loans allow borrowers to tap into up to 80-85% of their home’s value, minus any outstanding mortgage balance. Some lenders might offer up to 100% of the home’s equity, allowing for significant borrowing capacity based on the home’s value and the amount of equity accumulated​.

Factors that influence the sizing of personal loans, mortgages, and home equity loans

Several factors affect how much you can borrow, whether it’s a personal loan, mortgage, or home equity loan. These include the loan’s purpose, your creditworthiness, interest rates, the need for collateral, and associated risk factors.

Loan purpose

Personal loans are versatile, used for anything from debt consolidation to funding major purchases, typically without requiring collateral. But, these loans also tend to be smaller because they are unsecured.

Mortgages are specifically for buying property, allowing for larger loan amounts since the loan is secured by the home. Similarly, home equity loans are based on the equity in your home, often used for large expenses like renovations, allowing for significant borrowing amounts.

Creditworthiness

Credit requirements vary significantly between loan types. Personal loans can be accessible to individuals with a wide range of credit scores, but those with higher scores are likely to receive larger amounts and better rates. Mortgages and home equity loans typically require higher credit scores for the best rates and higher loan amounts. 

Interest rates

Interest rates for personal loans can indeed vary widely and are generally higher than those for secured loans like mortgages and home equity loans. This reflects the higher risk to lenders for unsecured personal loans. In contrast, mortgages and home equity loans usually offer lower interest rates, as these are secured by real estate, presenting less risk to the lender.

Collateral

Collateral plays a crucial role in determining loan amounts. When collateral isn’t required, like with personal loans, the loan amounts offered are typically smaller. On the other hand, using property as collateral for mortgages and home equity loans reduces lender risk, making it possible to provide larger loan amounts.

Risk factors

Risk factors also influence loan sizing. Personal loans pose a higher risk to lenders, as they are unsecured, generally resulting in smaller loan amounts. Mortgages and home equity loans are less risky for lenders since they are secured by the home, enabling larger loan amounts. The risk of foreclosure, should the borrower fail to make payments, further influences the lending decisions for these secured loans

Personal Loans, Mortgages, HELOCs (Oh My!)

Personal loans tend to be much smaller than mortgages and home equity loans because they are not secured by collateral. This makes it harder to get approved for a larger sum of money when compared to a mortgage or home equity loan.

When in doubt, be sure to explore multiple financing options and compare loan sizes, interest rates, and repayment terms to determine the loan that’s best for you.

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