Choosing Between A Second Mortgage and a Home Equity Loan
If you've found yourself in a difficult financial situation lately, and have been considering refinancing your home, you are probably wondering what the difference is between a second mortgage and a home equity loan. We've consulted several experts on everything to do with home refinancing, and they have offered here the best information on choosing between a second mortgage and a home equity loan for your refinancing needs.
The Differences
The first thing that you need to consider when making the decision between a second mortgage and a home equity loan is whether or not you can afford to take on the extra payments associated with a second mortgage. When you apply for a second mortgage, you are generally borrowing against your own credit history, rather than against the equity you have built up in your home as a home equity loan does.
This adds on a second payment, completely separate from your original mortgage. You will be required to make both payments every month, or run the risk of foreclosure. This is the biggest difference between a second mortgage and a home equity loan. If you cannot afford to take on another payment which may be as large as the payments on your original mortgage, then you may want to consider taking out a home equity loan instead.
The difference in the amount you will have to pay each month between a second mortgage and a home equity loan is considerable. When you take out a home equity loan, you are borrowing against the difference between the current market value of your home, and the amount remaining on your original mortgage.
Often the payments to repay your home equity loan can simply be added onto your original home loan payments, and at times may only raise your original payments a few dollars per month. Whereas the payments on a second mortgage can be equal to the amount you are already paying.
If you cannot afford the difference in payments between a second mortgage and a home equity loan, then it is advisable that you stick with the home equity loans to ensure that you do not run the risk of foreclosure. All too often, hard working home owners wind up facing foreclosure due to the fact that they made the wrong decision when choosing between a second mortgage and a home equity loan. The first rule of thumb should always be to never take on bigger payments than you can afford. This saves your home and your financial future.
