HELOCs and Second Mortgages: Which One Should I Choose?
By Mark Lambie
Whether you need some extra cash to pay off some credit card
debts, or to make some home improvements, home equity lines of
credit or second mortgages can be great ways to get started.
Many people looking to borrow money often opt for home equity
line of credit, or HELOCs, for short. They are a tempting first
choice, because they can often give you the much needed cash at
a low interest rate. Another advantage to taking out an HELOC,
or a home equity line of credit, is that they may provide the
borrower with a certain tax break, but you would need to verify
this with your lender or accountant.
One drawback to HELOCs, however, is the fact that borrowers
are expected to put their homes up as collateral. So, it is
important that you think this decision through, before finalizing the
loan, because you may be at risk of losing your home- and its
equity- if you are late or cannot make your monthly payments.
Finally, if you decide to sell your home, must HELOCs will
require that you pay off the balance, before completing the sale.
You can also take out a second mortgage, if you need some cash.
Like the HELOC, second mortgages usually pay out the loan in
one sum, which makes it a convenient option. Second mortgages
also have the added advantage of having set payments, at a fixed
interest rate. Many companies will charge a lending fee, which
will vary from company to company. These fees are usually
based upon a percentage of the loan and are frequently referred
to as 'points.' If one fee seems too high, don't be afraid to shop
around to find one which is better suited to your budget.
Remember, however, that adding a second mortgage to your
home carries with it certain risks. Like with home equity lines of
credit, you could lose your home, if you fall behind in the
About the Author
Mark Lambie is the founder of The Loan House a website that allows consumers to quickly and easily get online mortgage quotes and mortgage information.
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