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Home Equity Loans Vs. Second Mortgages

[Apr 17, 2010.]


It is a little bit confusing to think of the differences between an home equity loan and a second mortgage. Actually, they are both second mortgages, or liens in second position. A home equity loan is better defined as a home equity line of credit or HELOC. A second mortgage is better defined as a fixed rate, lump sum distribution of equity. These two types of loans serve different purposes. Following is information that can help you decide which option works best for you.

Home Equity Loans

Low cost, flexible, and fast: these are the key benefits to an home equity loan. Home equity loans are cheap loans. Depending on your equity position and credit score, your banker might attach this type of loan for as little as $500. Most HELOCs are based on Prime Rate which is currently 3.25%. The monthly payments are usually interest only. If your balance is $15,000 and your fully indexed rate is 3.75%, your monthly payment could be as low as $47. Commonly called a home equity line of credit or HELOC, these are quick loans. The process can take as few as 30 days. This type of second mortgage can be used and re-used, or just left sitting for emergencies. Access your equity easily with a debit visa card or checks. There are no restriction on how you use the money. You can go on vacation, pay for college, consolidate debts, or finance home repairs. If you need cheap, flexible financing in a hurry, apply for a new home equity loan today.

  • If you have a low, fixed interest rate on your first mortgage, chances are it doesn't make financial sense to refinance, especially if you have already been paying down the balance for several years. Home equity loans and second mortgages allow you to tap into your home's equity without replacing your first mortgage.

Second Mortgages

If you must access your equity, but your first priority is to pay off your house, a second mortgage may work best for you. You can access your equity in a lump sum to meet your needs but still have the security of a specific payoff date when you can get back on track with your original plan. Second mortgages typically have a fixed interest rate and a set term of either 15 or 30 years. You can take care of any problem that comes up while still planning for the day when you pay the loan in full. Apply for a fixed second mortgage


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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