Second Mortgage

What you need to know about different Mortgages?

Home ownership has the benefit that it allows you to use your home as collateral and borrow needed money against it, by taking a second mortgage. A second mortgage is a fixed rate loan, usually a 15 year term. The rate is usually higher than that of a line of credit but the rate will not fluctuate as the prime rate adjusts.

The main two types of second mortgages include home equity loans and home equity lines of credit (HELOC). In general, a home equity loan is a lump sum loan, and a HELOC is a revolving credit line, similar to a credit card, where interest is only paid on the amount borrowed.

A home equity line of credit normally can be defined as a revolving line of credit which enables the homeowner to take benefits of the equity in his home. It is worth mentioning in this regard that the maximum amount for this credit line is normally decided on the basis on a percentage of the appraisal value, usually 75%-85%, of the home minus the balance remaining on the original mortgage. Moreover, for example if you have a $10,000 HELOC and you have used $6000 from it and if you pay back $4000 then you will have access to $8000 again. This kind of a loan is perfect when you are not sure of the duration and would like credit over a period of time.

Home equity lines are more than perfect for homeowners who are interested in having a revolving credit line at their disposal and who are pretty much safe in using their home as collateral in securing this loan. During times of low interest, home equity lines of credit offers attractive and competitive adjustable rates. These HELOC loans work in a way that’s quite similar to a convenient consumer credit card. But lately the rates they charge are also starting to resemble those of credit cards, making them more of a liability than a perk. Now borrowers are shifting into fixed rate equity loans by the droves in order to take advantage of interest rates that are still near historic lows.

So those who take out traditional fixed rate mortgages for 15 to 30 years can lock in great rates. And those rates will endure for the life of the loan, no matter how high rates on adjustable loans may go.