Differences Between a Home Equity Loan & Second Mortgage

High-interest debt has you worried? Think about consolidating those high-interest credit cards as well as other bills into a home equity loan, also popularly known as a second mortgage loan. When you finance your debt with a secured loan, such as a home equity loan, you qualify for much lower interest rates. At the beginning of 2018, the rates for a line of mortgage credit were around 8%.

For the purpose of establishing the record, a true and real second mortgage is a fixed rate of 15-30 years in duration. Your credit is the basis from which the bank determines your terms, rate and if you will pay points to get it. However, a home equity line of credit is what most lenders would describe as a simple home equity loan. It is more than likely if you are offered a HELOC, it is more than likely a primary loan with a mortgage.

Second Mortgage or Home Equity Loan

Second mortgage or home equity loan are two different types of loan products that take advantage of the equity of your home. A home equity loan, or home equity line of credit, has a line of credit that you can use and an adjustable rate. These rates are linked to the preferential rate and can change daily or monthly, just depending on your loan contract. In addition, they have shorter terms, generally five years. After that, you have to make a lump sum payment or cover up a fixed term loan.

Rates and Terms

Second mortgages may have fixed or adjustable rates. Second adjustable rate mortgages modify less frequently than home equity line of credit loans, generally monthly or quarterly. Their terms are flexible as well, so you can choose 5, 10, 20 or 30 years to pay off your loan. The interest on both types of loans can be deducted from your taxes whether you qualify. Learn more.

Which Consolidation Loan Is Cheaper?

A consolidation loan can be cheap, with either low interest payments or low monthly payment. A second mortgage loan is your best bet with your extended loan terms for the lowest monthly payment. But a home equity loan is your best option for the cheapest global loan. With few charges and a short term, you can rapidly pay off your debt and limit your interest payments.

Important Things to Keep in Mind

You will use home equity as collateral for any kind of fund. If you stop making payments in both situations, your house can be executed. As you pay for the home equity line of credit during the lottery period, your credit limit continues to be renewed like a credit card, so you may access your limit several times during the lottery period.  A second mortgage is a lump sum and when received, you can’t maintain to access more funds even if you are paying the loan balance down.

The Bottom Line

There is a wide variation in what lenders charge for both home equity loans and second mortgages. Rates may vary by some percentage points. Rates can differ by hundreds as well, even thousands of dollars with a large loan. The just way to determine who has the best loan for you is to request loan quotes from different lenders. Check out this site: https://www.steponefinance.co.uk/mortgage-loans/