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Which Is Better: Home Equity Credit Or A Second Mortgage
By admin | October 4, 2008
When a homeowner needs some financial help, but does not want to refinance their present mortgage there are some real alternatives available. If some sort of equity loan is desired there are at least two main options. You can obtain either an equity credit line or a loan in the form of a second mortgage. There are of course, specific advantages and disadvantages with each option. Whichever option you choose you will need to know the exact reason you want to borrow and the amount you need. A lot of money can be saved over time if you take the time to pick the best type of loan for your needs.
Take a good look at both options to consider which one will give you the best type of service. One of them could be just the right thing to help solve your financial problems.
The Home Equity Line of Credit (HELOC) is the most common form of equity credit. With this option the borrower is given the greatest amount of flexibility. If you want to use equity to do much needed repairs or renovations to your home, the best way to ensure that everything is accomplished is with an equity line of credit. Often with home improvements the budgeted estimates come up short of what is actually needed to complete the work. An equity credit line often comes with a debit card option, which allows you to access more money if it is needed, by drawing funds on the equity on your house.
There are some disadvantages to HELOCs. You could get higher variable interest rates than you may get with a second mortgage. The lender could adjust the interest rates at any time because the rates are variable. The change in interest rates will result in higher monthly payments. There are no tax advantages to a Home Equity Line Of Credit because the interest is not tax deductible.
If you choose a second mortgage over an equity line of credit, you will find several advantages in the second mortgage. The interest rates on second mortgages are usually fixed rates. This is one of the main differences between them. The second mortgage allows you to borrow a fixed amount instead of having an account with a debit card which can be nothing more than an open invitation to spend needlessly. 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.
No matter which home equity loan option you use you will encounter some risks. The biggest risk is the fact that you are using your home for collateral. If you fall behind on the payments the lender could foreclose on the loan and take your property. Be sure to understand just what is at risk if you decide to take out a home equity loan.
Topics: Finance |