The primary difference between a HELOC and a Second Mortgage is the HELOC is a line of credit, and a Second Mortgage is a home loan.
- A HELOC is a comparable to credit card in the that fact you have a max credit limit (based on the equity available in your home).
- The benefit of a HELOC is the option to advance the money and pay down as often as you want during the team of the loan.
- Unlike credit cards, a HELOC is not forever, it has a term, which tends to be a 5, 10 or 15 year term.
- With a HELOC, interest is paid only on the amount used, not on the max credit limit.
- A HELOC is often a better option over a credit card because the HELOC interest rate is lower based on a secured (by your home) line of credit, while a credit card is an unsecured line of credit and requires a higher interest rate.
- A HELOC and a Second Mortgage also have a different set of rates and terms due to the fact the HELOC is a revolving line of credit, and the 2nd Mortgage is a permanent loan.
- Second Mortgages are created based on the set dollar amount you wish to borrow, which you receive the full funding at the time the loan is closed.
- A HELOC payment changes based on amount withdrawn, but a Second Mortgage payment is the same until the loan is paid in full.
If you would like to learn more, a conversation with a knowledgeable Dakotaland Mortgage Loan Officer is an easy and effective way to help determine if a HELOC or Second Mortgage is the right answer for you.
