Home Equity Line of Credit vs. Second Mortgages

If you own a home, you may be able to obtain quick cash using your
home’s equity. For the most part, our homes are our biggest asset. As our
home’s value increases, so does the equity. Some homeowners choose to
sell their homes in order to cash in on the equity. However, if you have
no intentions of moving, getting a home equity line of credit or loan
is a perfect way to tap into your home’s equity.Reasons for Applying for Home Equity Loan or Line of CreditUsing your home’s equity to pay for unexpected home improvements, car
repairs, or to pay for your child’s education is a solution to money
woes. Because of the high cost of living and excessive consumer debt, the
majority of middle class people are unable to save large amounts of
money. Most rely on their 401K and pension for retirement. However, if you
need cash now, a home equity loan is your best alternative.The benefit of a home equity loan or line of credit is that you may
receive one with less than perfect credit. Banks require applicants to
have collateral, minimum credit score, and sufficient income. With a home
equity loan or line of credit, the equity in your home secures the
loan.Benefits of a Home Equity Line of CreditIf approved for a home equity line of credit, you will receive a
revolving credit with the bank or mortgage lender. The term of the revolving
credit varies. An average term is five to ten years. During this time,
you have free reign to withdraw money from the line of credit. The
process is similar to getting a cash advance from your credit card.
However, the interest rate on home equity lines of credit are more reasonable
and generally at a fixed rate.Benefits of a Home Equity LoanHome equity loans, also referred to as second mortgages, do no involve
revolving credit. Instead, you are provided a lump sum of money that
may be used for any purpose. Common reasons for getting a home equity
loan is to consolidate debt, wedding expenses, college tuition, etc.These loans have fixed monthly payments and terms. Before applying for
either home equity option, weight the pros and cons. Can you afford an
additional monthly payment? If you are unsure, avoid putting your home
on the line. Failure to pay a home equity loan or line of credit will
result in foreclosure.