Second Mortgage Versus Home Equity Loan

Are you debating between a second mortgage and a home equity loan? Let us put all the information together for both and let me show you whether a second mortgage or a home equity loan is right for you.

A second mortgage tends to have a pretty high interest rate and I like to refer to it as a band aid loan. That means it is used to fix a situation temporarily until a more permanent solution can be found. Second mortgages can be taken out all the way up to 125% of the value of your home, but I would only recommend a 125% loan if you are in desperate need of the money.

Second mortgages are a little more dangerous than a home equity loan and usually involve more fees. I recommend a second mortgage for desperate situations or situations where a lot of high interest credit card debt is being paid off.

A home equity loan on the other hand is often referred to as a home equity like of credit. This is usually a revolving line of credit much like a credit card, but with a much lower rate. Sometimes you can get a home equity loan for a lower rate than your first mortgage.

Home equity loans are used more for personal needs, such as, a vacation, buying an investment property, starting a business, or a number of other important, but not desperate reasons. You normally have to have a better credit score to get a home equity loan versus a second mortgage.

I hope you have found this article to be helpful in your decision making process. If there is one other piece of advice I can give you it is to compare and shop around before settling on a company and their program. It is important to make sure you get the best deal, after all we are talking about your money.