Despite the numerous dissimilarities between a second mortgage and a home equity loan, it is still common for homeowners to be flummoxed when required to tell the difference. Second mortgages fall under the category of home equity loan types; but on the other hand home equity loans are akin to a line of credit. Which brings us to the question -- which is the best choice, a second mortgage vs a home equity loan -- and we shall try to answer this question with as much pith and substance.
It is imperative, first of all, that you know the fundamental concepts of both the second mortgage and the home equity loan.
Tale of the Tape -- Second Mortgage Vs Home Equity Loan
Second mortgages pay out a predetermined sum of money, as either a line of credit, in monthly installments or all at once. It is then paid back in a particular schedule just like the original mortgage. Dissimilar to refinancing, second mortgages do not supersede the initial mortgage.
Typically, second mortgages are 5 to 30-year mortgage loans that have a fixed rate of interest. These loans are similar to an original mortgage loan, with factors determining the interest rate specifically, but not limited to present interest rate, the home's market price and the credit history of the applicant. The interest rates on a second mortgage are a little higher and the fees lower.
Contrary to the former, home equity loans share a lot of affinities with how a credit card works, and credit cards for purchasing may also be included. A person who has equity on a home can make use of a home equity loan if they need an extra infusion of cash.
An individual can pay these loans simultaneously or in smaller increments. Several individuals would get their monetary infusions through the line of credit, allowing them to withdraw money any time necessary. Another significant congruence with credit cards, would be the specific interest rate charged on home equity loans and the amount that can be borrowed based on the individual's repayment capacity.
The process of determining a home equity loan's limits are quite simple, as the lender has to ascertain the home's appraised value and start calculating at three fourths of aforementioned value. Thereafter, the lender would deduct the outstanding balance owed on the given mortgage.
Financial requirements and priorities are usually the main variable when determining the type of loan. If money were required for a one-time expense, like paying for wedding preparations, it would be best to go for fixed-rate second mortgages.
If frequent needs for additional cash would arise in future, it would be smarter to opt for a home equity loan line of credit. Line of credit lets homeowners borrow money whenever needed and, if repayments were done equally quickly money would be more likely to be saved compared to second mortgages.
As an aside, a person's spending habits need to be duly evaluated when it comes to these types of loans. If somebody, for instance, is reputed to be a spender of Biblical proportions, then a home equity loan line of credit is probably not a judicious choice, and can be quite onerous in a financial sense.
It is imperative, first of all, that you know the fundamental concepts of both the second mortgage and the home equity loan.
Tale of the Tape -- Second Mortgage Vs Home Equity Loan
Second mortgages pay out a predetermined sum of money, as either a line of credit, in monthly installments or all at once. It is then paid back in a particular schedule just like the original mortgage. Dissimilar to refinancing, second mortgages do not supersede the initial mortgage.
Typically, second mortgages are 5 to 30-year mortgage loans that have a fixed rate of interest. These loans are similar to an original mortgage loan, with factors determining the interest rate specifically, but not limited to present interest rate, the home's market price and the credit history of the applicant. The interest rates on a second mortgage are a little higher and the fees lower.
Contrary to the former, home equity loans share a lot of affinities with how a credit card works, and credit cards for purchasing may also be included. A person who has equity on a home can make use of a home equity loan if they need an extra infusion of cash.
An individual can pay these loans simultaneously or in smaller increments. Several individuals would get their monetary infusions through the line of credit, allowing them to withdraw money any time necessary. Another significant congruence with credit cards, would be the specific interest rate charged on home equity loans and the amount that can be borrowed based on the individual's repayment capacity.
The process of determining a home equity loan's limits are quite simple, as the lender has to ascertain the home's appraised value and start calculating at three fourths of aforementioned value. Thereafter, the lender would deduct the outstanding balance owed on the given mortgage.
Financial requirements and priorities are usually the main variable when determining the type of loan. If money were required for a one-time expense, like paying for wedding preparations, it would be best to go for fixed-rate second mortgages.
If frequent needs for additional cash would arise in future, it would be smarter to opt for a home equity loan line of credit. Line of credit lets homeowners borrow money whenever needed and, if repayments were done equally quickly money would be more likely to be saved compared to second mortgages.
As an aside, a person's spending habits need to be duly evaluated when it comes to these types of loans. If somebody, for instance, is reputed to be a spender of Biblical proportions, then a home equity loan line of credit is probably not a judicious choice, and can be quite onerous in a financial sense.
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