It seems that many mortgage lenders and brokers are offering homebuyers more options when it comes to second mortgages. From interest only equity lines of credit to fixed rate home equity loans to option ARM mortgages, what loan works for you? With so many marketing loan terms and no clear defining solution, many lenders need to simply tell me what kind of loans they have, so that I can make a decision.
Consider looking at the home equity line of credit versus a fixed rate home equity loan. The first question to ask is what is the difference? To begin, let’s define what a home equity loan is and how it works. If a home buyer decides to use the equity already built up in his home he may qualify for a large amount of credit with a lower interest rate when needing to borrowing money. Also, depending on the situation the borrower may be able to deduct this interest rate from his taxes since the debt is protected by the home.
A home equity credit line is extended credit based on the equity in a home. This type of credit revolves like a credit card, because you can borrow and re-borrow. Of course other factors come into play when applying for this type of credit line. These include any additional outstanding debt, your financial history and your income. However, after you are approved you can borrow money up to the amount of the credit line whenever you need by using a check or credit card that has been furnished to you by the lender.
Home equity credit lines you will be given a specific period of time in which to borrow the money. At the end of the draw period your line converts to a traditional term loan with a repayment schedule. Do not forget to pay your 2nd mortgage payment on time.
Some lenders will offer a discounted interest rate on home equity loans, but chances are good that the lower interest rate will only apply for the first three to six months of the loan. If you choose an option with a variable interest rate you will find that your monthly payments will change as interest rates change. If you decide to sell your house you will also be expected to pay off the home equity line you have borrowed.
According to, Andrew Christie, who has been a loan originator for over seven years, "thel oan business goes up and down with interest rates, but consumer debt continues to rise." Christie continued, "The most important consideration for borrowers is how much money can they save by refinancing.”
Along the same lines of a home equity loan comes the fixed rate home equity loan with set monthly payments, as well as a set time period of repayment. The fixed rate home equity loan is typically secured by either a first or second mortgage and the loan can be granted for up to several years or more. Remember too that there is usually closing costs associated with establishing a line of credit or equity loan. Remember the cost versus the reward, when considering loan options.
Art is a philosopher, mortgage consultant and free-lance writer who enjoys publishing provocative articles about debt consolidation, credit and home financing. When he is not fishing for marlin in Cabo or surfing with the Ticos in Costa Rica, you can find Art typing away in a coffee shop. He is a major source of content for many banking institutions across the country. Art recommends the following websites: Bad Credit Home Equity Loans and 100% Home Mortgage Loans. For 2nd mortgages you can speak to a loan officer or go online to Sub-Prime Mortgage Refinancing.
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