There are thousands of people searching for second mortgage loans simply because they think it will help free up cash they have tied up within their homes. However, there is a stigma attached to second mortgages and some often believe it means a second mortgage signals there is something wrong with the home owner’s finances. That isn’t always the case and there are a thousand and one reasons to choose a second mortgage. However, many home owners get confused over whether they need a second mortgage loan or a home equity loan. What are the differences between the two?
What you’re Borrowing Against
With a second mortgage you are going to borrow the loan against the home and that if you fail to repay the loan, the lender can force a foreclosure to regain their money. A home equity loan is a mortgage which is against the value of the equity within the home. Again, if you fail to repay the loan, the lender can force a foreclosure to recoup their money. However, with a home equity loan, the first or primary mortgage on the home is technically the main priority for the homeowner. Second mortgage loans really don’t have that stance. No matter which type of loan you choose, you still have to make the repayments.
Second Mortgages Have Time Limits for Payment
Usually, with second mortgage loans lenders will set out a specific payment term for the loan. For instance, if you choose to borrow ten thousand dollars, the lender might specify you have to repay the loan by the following three years. Again, the terms of the loan will vary from lender to lender and of course, the amount of money in which you wish to borrow. Home equity loans will also set out payment terms but they can be slightly different to what a second mortgage loan is.
Which Loan Do You Need?
It comes down to what you feel is best for the home and what you believe is going to help free up the finances of the home. If you believe the home equity loan can work to your advantage, which might be the one for you. However, second mortgage loans are often a fantastic loan no matter what value your home has. Yes, you are borrowing against the home and you essentially use the home as collateral but it can be a great solution for most homeowners that plan to spend the next twenty years in the home.
When it comes the time to choose between a home equity loan and a second mortgage, you have two great options. They can in fact both help you with your finances without having to sell the home in order to see some equity from it. However, it’s an important decision you have to think very carefully about. You want to ensure you don’t make a terrible mistake by choosing a loan that doesn’t work for your personal circumstances. It’s important to choose carefully so that you can get the right value for money. Second mortgage loans are fantastic but it is worth investing more.