Home Equity Line of Credit - Second Mortgage
January 7, 2008
2006 is now history and 2007 is in the making. Many Americans once again face the issues of spending more than they earn and once again those who own their own home find out why owning a home is called, “Great American Dream.”
Home equity line of credit is like a huge credit card that allows you to borrow against the equity of your home. This means two things. First, your home should be worth more than the amount of loan borrowed against it and the second, this type of loan should be considered even more carefully than the a credit card debt.
The home equity line of credit contract uses your home as collateral for the loan, which means you risk losing your home if the term of the home equity line of credit is not met.
There are other risks that a person in a financial jam may not consider, for example a large final payment also known as a balloon payment. Optimists of the world believe that miracles can come in play and somehow the need for a balloon payment will be satisfied. I like to take steps when I can to make sure that the higher powers can help me. This is why I would suggest that you also look at a second mortgage as well.
Let’s look at a basic difference between home equity line of credit and second mortgage.
Home equity line of credit allows you to keep borrowing and paying from your account through out the term of the contract. It is just like a revolving credit. You can also pay the minimum payment and no one will bother you. Chances are that by the end of the loan term, you owe the bank the maximum you could borrow, the full amount of home equity line of credit and then you have to make decisions, much later in life and perhaps with fewer resources.
On the other hand, a second mortgage has a fixed time frame. At the end of the period and assuming that you have kept up with the payment schedule, you will have finished with the loan and you will not need to find alternatives and come up with new plans. It is done and finished.
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