Home Equity Loans Vs. Second Mortgages

 

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• Pledged-Asset
• Simultaneous Second
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Reverse

• Home Equity Conversion Mortgage (HECM)
• Home Keeper and Home Keeper for Home Purchase

Mortgage Refinancing

 

Many people, including lenders, use the terms home equity loan and second mortgage interchangeably. In terms of how a standard home equity loan is structured it is a second mortgage. However, a home equity line of credit (HELOC) has substantial differences from a second mortgage.

Second mortgages – A second mortgage actually is a form of home equity loan. A homeowner receives a lump sum payout based on the equity available in the home. The interest on the loan is generally a fixed rate and the term may be fifteen to thirty years.

Advantages of a second – Unless the bottom falls out of the real estate market the combined mortgages will still be less than the value of the home itself. Also, the monthly payment will stay the same.

Disadvantages of a second – The payment will be based on the entire sum loaned so it may be higher than the HELOC payment.

HELOC – A home equity line of credit is essentially a revolving loan. A set amount for the loan is agreed upon but not paid out in a lump sum. The homeowner accesses the funds as they are needed. He/she may receive a debit card or checks to make withdrawals from the loan amount.

Advantages of a HELOC – The homeowner is not paying interest on money that has not been withdrawn. Money may be withdrawn, repaid and withdrawn again.

Disadvantages of a HELOC – Home equity lines of credit generally have variable interest rates meaning a homeowner’s payment may fluctuate. The fluctuating interest rate can also cut into the amount of equity which the home will be accruing.

 

Correcting Your Credit

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Miscellaneous

Adjustable Vs. Fixed Mortgages Other Types Of Mortgage Loans First Time Buyer Programs Private Mortgage Insurance - PMI Home Mortgage Refinancing

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