Home equity loans, lines of credit, and 2nd mortgages

SOMETIMES HOMEOWNERS HAVE EQUITY IN THEIR PROPERTY, AND WANT TO USE SOME OF THAT EQUITY WITHOUT HAVING TO DO A FULL REFINANCE.  THIS IS WHERE THEY MIGHT CONSIDER A HOME EQUITY LINE OF CREDIT (HELOC), OR A HOME EQUITY LOAN (HELOAN)

Reasons for wanting to do a 2nd mortgage:

  • Terms on the existing mortgage are really good, and you don’t want to give up those terms by doing a whole new refinance where rates may be worse.
  • Using equity in the home towards home improvements, repairs, or other renovations may be cheaper than paying for them with a credit card or personal loan.
  • Taking equity from your home to pay off other high interest debt as a way to to consolidate it and have a more manageable payment.
  • If you are moving and want to purchase your new home before you sell your current one, a 2nd mortgage may be a way you can access the equity from your exit property to use as down-payment towards the new home.

There are lots of ways to structure a 2nd mortgage.  A home equity line of credit (HELOC) allows you to draw against it, pay it back, and draw against it again if needed.  These are often variable rate loans.  A home equity loan (HELOAN) acts more like your fixed-rate first mortgage.  There is a total amount funded at closing, and a fixed rate payment amortized so it’s paid back within the term you select.

2nd mortgages have a lot of features and options different than your regular 1st mortgage, so make sure you discuss in detail with your loan officer to see if it’s a good fit for your needs.