2nd Mortgage Loan Or Home Equity Loan?
There is a difference inbetween a 2nd mortgage loan and a home equity loan. More often than not, people confuse the two or use them interchangeably. Why is a 2nd mortgage different from a home equity loan?
A 2nd mortgage loan disburses a sum of money which would be repaid on a particular schedule. It does not supersede in any way the very first mortgage. It has a immobilized interest rate and lasts inbetween ten to fifteen years. This loan is usually based on the value of the property, the prevailing interest rate, and on your credit history. Always bear in mind that this type of loan has a higher interest rate than that of a very first mortgage, but the fees involved are much lower.
A home equity loan on the other mitt, has a similarity with the credit card in terms of how it works. In this type of loan, interest is charged, and the amount that you could borrow will be based on your creditworthiness.
In order to determine the amount that you could borrow in a home equity loan, lenders look at the current value of your property and embark at 75%. Then, they will subtract the outstanding balance you owe on your mortgage.
You must assess your financial needs in order to determine the type of loan which is right for you. More likely that you would be opting for a motionless rate 2nd mortgage loan if you need it to finance one-time expenses such as a wedding or building a porch or extending a room in the house.
However, if you foresee a constant or a recurring need for money, you might want to take a home equity loan instead. This offers you more plasticity in dealing with your finances. It permits you to borrow money at times that you truly need it, and the good thing is that if you pay it on time, you could save money compared to having a 2nd mortgage. This would be good for payments for college education or a car amortization.
Another thing that you must consider is your spending habit. If you cannot contain yourself to be thrifty, then better choose a 2nd mortgage than a home equity loan because the latter permits you to borrow money against your property every time, and soon enough you might not be able to account for everything and end up in a hefty amount of debt.
Once you have considered every factor involved in taking a loan, you must discuss your needs with your lender, as well as the details of the loan that you are most likely to take. Weigh everything. Clarify all details and intricacies with your lender like the modes of payment, the interest rates that would be applied, any extra interest when you pay late, the maximum allowance that they could give before considering it default, and all other pertinent information concerning the loan. Having all the information needed would also serve as your protection in the long run.
Reminisce that a 2nd mortgage loan is viable for one-time expenses while a home equity loan is better for recurring expenses. In any case, make sure that you pay your dues on time and choose the loan which would best serve your needs and not your wants.