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HELOCs and Second Mortgages: Which One Should I Choose?
Whether you need some extra cash to pay off some credit card
debts, or to make some home improvements, home equity lines of
credit or second mortgages can be great ways to get started.
Many people looking to borrow money often opt for home equity
line of credit, or HELOCs, for short. They are a tempting first
choice, because they can often give you the much needed cash at a
low interest rate. Another advantage to taking out an HELOC, or a
home equity line of credit, is that they may provide the borrower
with a certain tax break, but you would need to verify this with
your lender or accountant.
One drawback to HELOCs, however, is the fact that borrowers
are expected to put their homes up as collateral. So, it is
important that you think this decision through, before finalizing
the loan, because you may be at risk of losing your home- and its
equity- if you are late or cannot make your monthly payments.
Finally, if you decide to sell your home, must HELOCs will
require that you pay off the balance, before completing the
sale.
You can also take out a second mortgage, if you need some
cash. Like the HELOC, second mortgages usually pay out the loan
in one sum, which makes it a convenient option. Second mortgages
also have the added advantage of having set payments, at a fixed
interest rate. Many companies will charge a lending fee, which
will vary from company to company. These fees are usually based
upon a percentage of the loan and are frequently referred to as
'points.' If one fee seems too high, don't be afraid to shop
around to find one which is better suited to your budget.
Remember, however, that adding a second mortgage to your home
carries with it certain risks. Like with home equity lines of
credit, you could lose your home, if you fall behind in the
payments.
Mark Lambie is the founder of The Loan House a website that
allows consumers to quickly and easily get online mortgage quotes and
mortgage information.
MORE RESOURCES updated Sun. May / 28 / 2023
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The simple definition of a "non-conforming home loan" is:
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