What's the difference between a home equity loan, a HELOC, and a second mortgage? If you're considering taking out a loan against the equity in your home, you might be wondering about your options. Here's a rundown of the key differences between a home equity loan, a HELOC, and a second mortgage.
A home equity loan is a lump-sum loan, meaning you get the entire amount of the loan in one lump sum. You then make fixed monthly payments over the life of the loan. A HELOC, on the other hand, is a line of credit that you can draw on as needed. You only make payments on the amount you've borrowed, and you can borrow as little or as much as you need.
A second mortgage is a loan that is secured by your home, just like your first mortgage. The difference is that a second mortgage is taken out after you have already established equity in your home. Because of this, second mortgages typically have higher interest rates than first mortgages.
So, which is the best option for you? It depends on your individual circumstances. If you need a large amount of money all at once, a home equity loan might be the best option. If you need more flexibility, a HELOC might be a better choice. And if you're looking for a lower interest rate, a second mortgage might be the way to go.