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 The terms "second mortgage" and "home equity
loan" can be a little confusing for many home owners. Most
of them do not know the difference. For technical purposes,
a second mortgage is a kind of home equity loan. In the home
finance market, the term “home equity loan” is used to mean
a home equity line of credit. When the time comes to make a
decision on, you will have to decide on a home equity loan
or a second mortgage, to take the best advantage on the
equity you have built on your home. If you’re considering a
second mortgage loan and home equity loan the following may
help you decide on the best course of action.
Second mortgage loan gives you access to a fixed sum of money,
that has to be repaid according to a preplanned schedule, similar
to the initial mortgage. This does not supercede the first
mortgage in any way as in refinancing option. The period normally
varies between 15 to 30 years for repayment which is calculated
on a fixed rate of interest. The rate of interest is based on
your credit history, the cost of your home and the present market
interest rates. Generally the interest rates on the second
mortgage loans are a little higher while the fee is a little
lower.
A home equity loan is also a one time loan and is given on the
basis of your credit worthiness and the present value of your
home. The calculation begins with a 75% value which is then
reduced by the amount of outstanding mortgage payments. The
amount thus resulting can be availed as a loan, if you have an
excellent credit history. It may go down further, if the credit
history if questionable.
In case you need extra money for any occasion or investment, a
home equity loan may be better for you, since it gives you the
freedom to choose between fixed and variable interest rates and
the term of repayments. But, if you need the extra money once and
are not looking forward to pay it back quickly, you may opt for
the second mortgage loan. Once you decide on your requirements,
read the fine print on each of theses loan options lest you are
not in for surprises later.
A second mortgage loan and home equity loan can be a great
decision if properly thought out and utilized correctly. As with
any financial decision; always consider the benefits as well as
the negative aspects before making a decision.
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