The Three Types of Mortgage Loans: Pros and Cons
Mortgage loans come in three primary types: home equity loans, second mortgages, and reverse mortgages. Each has its own set of pros and cons, so it’s important to understand these before making a decision.
A home equity loan is a lump sum loan with a fixed interest rate. The biggest pro is that the interest on a home equity loan is usually tax-deductible. The cons are that you may have to pay closing costs, and if you miss a payment, you could lose your home.
A second mortgage is a loan that is secured by your home, but that you make payments on separately from your first mortgage. The big pro of a second mortgage is that the interest rates are usually lower than those of other types of loans. The con is that if you don’t make your payments, you could lose your home.
A reverse mortgage is a loan that you don’t have to make payments on until you die or sell your home. The biggest pro is that you don’t have to make payments as long as you live in your home. The con is that the interest accrues over time and can be expensive.