Getting a home equity loan vs. getting a second mortgage: what to consider
If you're considering taking out a loan to make home improvements, pay for medical expenses or consolidate debt, you may be wondering if it's better to get a home equity loan or a second mortgage. Both types of loans have their own advantages and disadvantages, so it's important to weigh your options before making a decision.
Here are some things to consider when deciding if a home equity loan or second mortgage is right for you:
- How much money do you need to borrow? Home equity loans typically have lower interest rates than personal loans or credit cards, so they may be a better option if you need to borrow a large amount of money. On the other hand, second mortgages often have higher loan limits than home equity loans, so they may be a better choice if you need to borrow more than your home equity can provide.
- What is the interest rate on the loan? Home equity loans usually have fixed interest rates, while second mortgages typically have variable interest rates that can fluctuate with the market. This means that your monthly payments could go up or down over time, which could make it more difficult to budget for your loan repayments.
- How long do you need to repay the loan? Home equity loans typically have shorter repayment terms than second mortgages, so you'll likely have to make higher monthly payments. If you're not planning on staying in your home for a long time, or if you're worried about being able to afford the monthly payments, a second mortgage may be a better option.
- What are the fees associated with the loan? Both home equity loans and second mortgages come with closing costs and other fees, so be sure to compare these costs before making a decision.
- What is your credit score? Your credit score will impact the interest rate you're offered on both home equity loans and second mortgages. If you have a good credit score, you may be able to qualify for a lower interest rate, which could save you money over the life of the loan.
- What is the value of your home? The amount of equity you have in your home will impact how much money you're able to borrow with a home equity loan or second mortgage. If your home's value has decreased, you may have less equity to borrow against.
- What are the tax implications? Interest on both home equity loans and second mortgages is typically tax-deductible, but there are some restrictions. Be sure to speak with a tax advisor to see if the interest on your loan will be tax-deductible.
No matter which type of loan you choose, be sure to shop around and compare interest rates, fees, and repayment terms before making a decision.