Deciding Between Second Mortgages vs. Reverse Mortgages vs. HELOCs


What's the Difference Between a Second Mortgage, a Reverse Mortgage, and a Home Equity Line of Credit (HELOC)?


When you're a homeowner, you have a lot of options when it comes to borrowing against the equity in your home. But what exactly are your choices? If you're looking to take out a loan against your home, you might be considering a second mortgage, a reverse mortgage, or a home equity line of credit (HELOC). Here's a rundown of 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 equity—that's the difference between the appraised value of your home and the balance of your first mortgage. Taking out a second mortgage means that you're borrowing against the value of your home, and if you default on the loan, your lender could foreclose on your home.

Reverse Mortgage

A reverse mortgage is a loan that allows homeowners who are 62 or older to cash in on the equity in their homes. With a reverse mortgage, the lender doesn't make monthly payments to the borrower. Instead, the loan is repaid when the borrower moves out of the house or dies.

Home Equity Line of Credit (HELOC)

A HELOC is a loan that's secured by your home equity and that allows you to borrow against the equity in your home. With a HELOC, you can borrow up to a certain amount of money, and you only have to pay back the money that you've borrowed—plus interest and fees.

So which one of these options is right for you? It depends on your individual circumstances. If you're looking for a way to get some extra cash, and you're comfortable with the idea of putting your home on the line, then a second mortgage or HELOC might be a good choice. If you're 62 or older and you need a way to supplement your income, then a reverse mortgage might be a good option. Ultimately, it's important to talk to a financial advisor to figure out which option is best for you.

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