Home Equity Loans Versus Second Mortgages
Many people, including lenders, use the terms home equity loan
and second mortgage interchangeably. In terms of how a standard
home equity loan is structured it is a second mortgage. However,
a home equity line of credit (HELOC) has substantial differences
from a second mortgage.
Second mortgage – A second mortgage actually is a form of
home equity loan. A homeowner receives a lump sum payout based
on the equity available in the home. The interest on the loan is
generally a fixed rate and the term may be fifteen to thirty
years.
Advantages of a second – Unless the bottom falls out of
the real estate market the combined mortgages will still be less
than the value of the home itself. Also, the monthly payment
will stay the same.
Disadvantages of a second – The payment will be based on
the entire sum loaned so it may be higher than the HELOC
payment.
HELOC – A home equity line of credit is essentially a
revolving loan. A set amount for the loan is agreed upon but not
paid out in a lump sum. The homeowner accesses the funds as they
are needed. He/she may receive a debit card or checks to make
withdrawals from the loan amount.
Advantages of a HELOC – The homeowner is not paying
interest on money that has not been withdrawn. Money may be
withdrawn, repaid and withdrawn again.
Disadvantages of a HELOC – Home equity lines of credit
generally have variable interest rates meaning a homeowner’s
payment may fluctuate. The fluctuating interest rate can also
cut into the amount of equity which the home will be accruing.Here are our recommended home equity lenders online:
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