Should you choose a Fixed rate 2nd or Home Equity Line?

So you have been thinking of utilizing the equity in your home but do not know what is the best program for you. Depending on how much equity you have available you will choose between a fixed rate second mortgage or Home Equity line of credit (HELOC for short).

Both programs will fulfill your need whether it's cash for home improvements, consolidating debt, college tuition, or whatever reason you have. They will both provide you with the funds that you require. The question is which program suits your situation or fits your needs. In order to answer that we should compare the programs and point out the strengths and weaknesses of each.

Fixed rate second mortgages

Fixed rate second mortgages are exactly what they say, they carry a fixed rate, payment and term. So this loan will have a definite payment schedule and predetermined ending date. That is also the main advantage; as a consumer you will know what your rate and payment is for the length of time you have this loan. In addition you are given the entire loan amount at closing, so whether you are paying off debt or taking cash the funds are available at closing.

A disadvantage is that the rate could be higher than what a HELOC would be offering. Also depending on the lender you might not be able to use as much equity compared to HELOC lenders. Finally there is no flexible payments, they will only offer a fully amortizing payment.

Home Equity Line of Credit

Now let's look at Home Equity Lines. The biggest advantage is a lower rate. Their rates are almost always tied to the Prime Lending Rate. Also they offer fast closing and the ability to borrow up to 100% of the value of your home. Finally they will give you the choose of interest only payments or fully amortizing, letting you be in more control.

A big disadvantage in the recent market is the variable rate. Home Equity lines are all variable rate products and as the Prime Rate moves so does your equity line rate. Another drawback consumers find is the interest only payment, it does offer you a lower payment, however with that payment you are not paying down any principal each month.

These are just a few advantages and disadvantages of HELOCs and fixed rate second mortgages. In the end it is up to you to decide between the two. It is strongly recommended to seek the assistance of a professional that can review all the options and weigh the pros and cons with you. Please look at one our trusted online lenders for help.

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