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Choosing Between A Second Mortgage And A Home Equity Loan

Jun 17, 2008
There are some alternatives available to the homeowner who needs financial help but does not want to refinance their present mortgage. There are however, at least two main options if some sort of equity loan is desired. You can obtain an equity credit line or a second mortgage loan and there are specific advantages and disadvantages with each one. Money can be saved over time if you take time to choose the loan that best fits your needs. Whatever you decide you will need to know the exact reason you want to borrow and the amount you need to make the loan for.

One of these loan options could be just the right thing to help solve your financial problem. You need to take a close look at both types of loan in order to see which one will give you the best type of service.

The most common form of equity credit is the Home Equity Line of Credit and this option gives the borrower the greatest amount of flexibility. If you want to do much needed repairs or renovations to your home, the best way to make this happen is to use the equity available in a loan that contains an equity line of credit. An equity credit line often comes with a debit card option that allows you to access more money when it is needed. Home improvements can often be estimated to be less expensive than they end up being, so the ability to draw on funds from the equity on your home is a very convenient option of a home equity credit line.

There are some disadvantages of the Home Equity Line of Credit. There could be a higher variable interest rate than with a second mortgage. The lender could make an adjustment in the credit rate at any time because the rates are variable and the changed interest rates could result in higher monthly payments. The interest is not tax deductible, so there are no tax advantages to HELOCs.

There are some definite advantages to a second mortgage. You may choose this option over the Equity line of credit. The interest rates on second mortgage loans are usually fixed rates and this is the main difference between the second mortgage and the equity line of credit. The second mortgage will allow you to borrow a fixed amount instead of having an open account from which to access funds and possibly put yourself into debt. The second mortgage loan can be used as a way to get out of debt. It can be used to consolidate outstanding debts and bring it all under one low monthly payment. You can also use the interest on a second mortgage as a tax deduction.

The biggest risk you encounter with a home equity loan is the fact that you are using your home as collateral for the loan. This is to protect the lender in the event that you fail to meet your loan payment requirements. The decision could be made to foreclose and you could end up loosing your home. Be sure you know just what is at risk when you take out a home equity loan of any type.
About the Author
Joe Kenny writes for Rebuild.org, offering home equity loan deals, they also have some great offers on mortgages.
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