Deciding Between Second Mortgages vs. HELOCs vs. Home Equity Loans
When homeowners need cash, they often consider taking out a second mortgage, a home equity line of credit (HELOC), or a home equity loan. But which one is right for them? It depends on several factors.
Second Mortgage vs. HELOC vs. Home Equity Loan: How to Choose
When it comes to getting extra cash from your home, you have three main options: a second mortgage, a home equity line of credit (HELOC), or a home equity loan.
So, how do you choose which one is right for you?
It depends on several factors, including how much money you need, how soon you need it, how long you need to pay it back, and what you plan to use the money for.
Let’s take a closer look at each option to help you decide which one is right for you.
Second Mortgage
A second mortgage is a loan that’s secured by your home, just like your first mortgage. The main difference is that a second mortgage is taken out after you’ve already taken out a first mortgage.
Because they’re secured by your home, second mortgages typically have lower interest rates than other types of loans, such as personal loans or credit cards.
Second mortgages also tend to have longer terms than other loans, which means you’ll have more time to pay back the loan.
The downside of second mortgages is that they can be difficult to qualify for if you don’t have a lot of equity in your home. And, if you do qualify, you’ll likely need to pay origination fees and closing costs.
Home Equity Line of Credit (HELOC)
A home equity line of credit (HELOC) is a type of loan that allows you to borrow against the equity in your home.
Like a second mortgage, a HELOC is secured by your home, so it usually comes with lower interest rates than other types of loans.
HELOCs also tend to have flexible terms, which means you can choose how long you want to borrow the money for and how much you want to borrow.
The downside of HELOCs is that they can be difficult to qualify for if you don’t have a lot of equity in your home. And, if you do qualify, you’ll likely need to pay origination fees and closing costs.
Home Equity Loan
A home equity loan is a type of loan that allows you to borrow against the equity in your home.
Like a second mortgage, a home equity loan is secured by your home, so it usually comes with lower interest rates than other types of loans.
Home equity loans also tend to have fixed terms, which means you’ll have a set amount of time to pay back the loan.
The downside of home equity loans is that they can be difficult to qualify for if you don’t have a lot of equity in your home. And, if you do qualify, you’ll likely need to pay origination fees and closing costs.
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