If you are uncertain as to which type of home equity loan is right for you, a second mortgage has many advantages over a home equity line of credit. Here is what you need to know when considering a second mortgage for your home.
There are a variety of different ways to borrow against equity in your home. Home equity lines of credit are a popular choice due to their ease of access to cash; however, this credit line is a more expensive option. Interest rates have been rising significantly the past few years. Home equity lines of credit come with variable interest rates; recent interest rate hikes can result in significant increases in your monthly payment amount for an equity line of credit.
Second mortgage loans have the advantage of coming with a fixed interest rate. If you have a large amount of equity in your home and need to borrow a sizeable amount of this equity, a second mortgage makes sense over the equity credit line. You will have fixed payment amounts you can spread out over a large period of time. These payment amounts will not change due to interest rate hikes at the hand of the Federal Reserve.
It is important to remember that a second mortgage is secured by your home just like your first mortgage. If you fall behind on the payments on the second mortgage your mortgage lenders can foreclose even if you are not behind on the first mortgage. This is why it is important to budget accordingly and never borrow more than you need. You can use the proceeds from this second mortgage for any reason; however, just because you can borrow against your equity does not mean you should. If you get in trouble making the payments on either mortgage you could lose your home.
Shopping for a second mortgage is no different than shopping for your first mortgage. It pays to do your homework and research a variety of home equity lenders before applying. Doing your homework will help you avoid many of the mistakes homeowners make when applying for a home equity loan; to learn more about avoiding these common mistakes, register for a free mortgage guidebook.
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Louie Latour specializes in showing homeowners how to avoid common mortgage mistakes and predatory lenders. For a free copy of "Mortgage Refinancing - What You Need to Know," which teaches strategies to find the best mortgage and save thousands of dollars in the process, visit Refiadvisor.com.
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