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Home
Equity |
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What is the
difference between a traditional second mortgage
and a home equity line of credit? |
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Both
traditional seconds as well as home equity lines
of credit are technically considered second mortgages.
With a long-established second mortgage, the rate
is typically fixed and all funds are paid out
at closing. The term of the mortgage could be
anywhere from 15 to 30 years. With a Home Equity
line of credit, as the name implies, the funds
are drawn from a credit line account as needed
and not paid out in a lump sum at closing. The
rate on the credit line is naturally an adjustable
(usually tied to the prime rate index) and the
term can be somewhere from 15 to 30 years. Home
equity lines have a draw period, typically occurring
in the first 10-15 years, with the lasting term
on the loan referrded to as the repayment period. |
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Is it better to refinance
my first mortgage to take cash out rather than getting
a second mortgage on my property? |
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First determine
how competitive your existing first mortgage rate
is relative to where current interest rates are.
Also, evaluate how many years you have paid into
your existing first mortgage. For example, if
you have been making payments for only several
years and today's market rates are close to where
the rate on your existing first mortgage is, then
you may want to consider refinancing your first.
Conversely, if the rate on your accessible first
mortgage is significantly lower than that of current
market rates and if you have been making payments
on your mortgage for a period of five years or
more, then a second mortgage may be a more reasonable
financial solution than starting over with a new
first loan. Consultant with your financial advisor
for an optimal decision. |
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How do I determine which
type of secondary home equity financing is best
for me? |
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A
reasonable guide for making this decision is to
evaluate your intended use for the funds. If you
have a pre-determined cost that will require a
lump sum or fixed payment (i.e. major home improvements
for which you have a written estimate) then you
may prefer a traditional second mortgage with
rate and term that are fixed for the life of the
loan. Conversely, if you have a flow of undetermined
expenses (i.e. misc. home improvements, misc.
consumer purchases) then you may prefer the check
writing convenience of a home equity line. With
a home equity line of credit, you pay interest
only on the funds you use or need, therefore with
unpredicted expenses this may be the most cost-effective
approach. |
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