A home equity loan can be obtained with your home as collateral. Home Equity Loan is divided into two types: Second Mortgage Loan and Home Equity Line of Credit. A line of credit which you can adopt whenever you want is known as Home Equity Line of Credit whereas in a second mortgage, you are offered a fixed amount of loan which you are required to repay within a fixed period. It is a good idea to assess your situation carefully and thoroughly to find out what expenses you need financed. As there are major differences between a line of credit and a second mortgage loan, a decision to choose one over the other should be a prudent one. The right choice will save you a significant amount of money.
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There are four major differences between home equity line of credit and second mortgage loan:
Flexibility
A line of credit is more flexible than a second mortgage loan. In case of line of credit, a borrower can acquire an amount whenever he wishes to while in second mortgage, one must repay the loan within 5-15 years. If someone wants to borrow a larger amount, he has to go for another loan. A person needing money periodically or pay for expenses that come in stages, it is better to go for a line of credit. It may include a long term project such as home renovation where bills are paid as they come.
Conservative
The line of credit is less conservative than a second mortgage loan. The line of credit works as a credit card in one’s pocket does. It provides money when it is needed instead of all at once. If someone wants to borrow a certain amount and wants to repay it in installments in a certain period of time, it is better for him to acquire a second mortgage loan.Interest Rates
People all over the world prefer loans with low interest rates. In case of second mortgage loan, the interest rate is higher as compared to that in the line of credit. However, the repayment amount is fixed and never goes out of range like it does in the line of credit. Less-Appealing
The second mortgage loan has less temptation of spending than that in the line of credit. Since the line of credit allows you to get the amount when you want, the capacity of spending the money increases as the repayment amount is not limited.
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If you want to spend money starting a new business, paying off debts or going to spend your vacations, you should go for a second mortgage loan. If you want to pay medical bills or tuition fees, experts suggest you acquire a line of credit.
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