Most lenders will now refer to a 2nd mortgage as a home equity loan. You will sometimes hear them being called a home equity line of credit as well. These are similar terms in a sense that both of them are loans that you get by using the equity in your home. However, there are also significant differences between the two types of loans.

The more traditional type of loan would be the home equity loan. In order to determine the amount of equity you hold, you would find the difference between the current value of your home and the amount that you still owe on your mortgage. The amount that you come up with is the amount that the lenders will take as collateral when they give you an additional mortgage on your home.

Remember that this loan is not going to take the place of your initial mortgage. Plus, your interest rate will be a little higher because the lender is taking more of a risk this time around. This is because in the event that you should default, your first mortgage will have to be paid off before they can get their money. In most cases you will be able to get a fixed rate on a home equity loan, but there may be some cases in which you will get offered a mortgage with an adjustable rate. However, you will get your money in one lump sum, and then there will be a fixed period of time that you will have to repay the loan.

When you get a home equity line of credit, you will still be using your home equity as collateral. However, instead of just getting one lump sum of money you will get a line of credit that works like a credit card and has a determined limit. You can either gain access to the money by writing a check or using a type of a debit card. Most of the time there will be a minimum withdrawal amount set for you, and sometimes you will also be required to take out a certain amount of money in the beginning and not repay it until the term of your loan expires.

No matter what type of loan you get, you should only use the money if it is going to benefit the financial future of you and your family. You could make home repairs that will increase the value of your home, consolidate your debts or pay for your child to go to college. In the event that you are using the money for dent consolidation, be sure that the interest rate on your loan is going to be lower than the interest rate that you would be charged on your outstanding debts.

In the event that you do go ahead and get a loan like this, keep in mind that you will have three business days from the day you sign to change your mind without getting a penalty. Even with that in mind, make sure that you have taken all things into consideration before you make the final decision to get a 2nd mortgage.

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Category: Finances
Keywords: 2nd Mortgage