There are many important factors that go into the decision to take out a 2nd mortgage, and it’s important for you to understand the different decisions you’ll need to make during the process of taking out a second mortgage. One of the most important decisions you’ll need to make is deciding whether or not to pursue a Home Equity Line of Credit, also known as a HELOC, or a Home Equity Loan, which is sometimes referred to as a basic home equity loan.
These two types of loans have different qualities and benefits depending on your particular needs. Both types of loans are borrowed against your home equity—that is, what remains when you subtract how much you owe on your house from the total value of your house.
About Home Equity Line of Credit (HELOC)
A Home Equity Line of Credit, or HELOC for short, can be described as being similar to a credit card. When you take out a HELOC, you are given a line of credit that allows you to borrow money until you reach a specific limit. You can borrow money even while you are paying off the loan, which is what makes a HELOC comparable to a credit card.
Taking out a HELOC for your 2nd mortgage is advisable in situations where you aren’t sure exactly how much money you’ll need, or when you will want to borrow money several times rather than all at once. And because you can borrow different amounts of money each month, your minimum monthly payment for a 2nd mortgage using a HELOC can vary depending on how much you have borrowed. HELOCs are generally recommended for either less expensive bills, such as a less expensive home renovation, as well as emergency or sudden bills like medical bills or bills that have to be paid so that penalties are not incurred.
About Home Equity Loans
Home equity loans are fixed lump sums which are given all at once, and which have the same minimum payment each month. You cannot borrow more money from a home equity loan, since it is a fixed amount.
Taking out a standard home equity loan for your 2nd mortgage is advisable in situations where you need to pay for something that is expensive, when you know how much you need to borrow, or when you are borrowing money for one specific reason rather than multiple variable reasons. And because a home equity loan is a lump sum, the monthly payment does not change. Home equity loans are generally recommended for more expensive bills that have a fixed, one-time price, such as remodelling your house, paying for secondary education, and so on.
A 2nd mortgage can be manageable when you take the time to prepare yourself before beginning the process of taking one out. If you are unsure whether or not a HELOC or home equity loan is best for your situation, you may want to contact a professional financial consultant.