Question:

Why take a second mortgage and home equity loan?

Answer:

A second mortgage and a home equity loan are essentially the same.

Even though a home equity loan may come as a first lien on the property, HELOANs and HELOCs are used in the second position almost all of the time. A home equity loan (also called HEL or HELOAN) is closest to a traditional second mortgage in the sense that they are closed-end lump sum installment loans in a second lien position. A HELOC, or a home equity line of credit, is a revolving line of credit and can be used as a credit card.

Second Mortgage and Home Equity Loan General Traits

All three types of home equity loans are used to consolidate debt or for a big ticket purchase. Some people would take a HELOC to buy a car, cover wedding expenses, or pay college tuition.

Second mortgages and home equity loans have slightly higher rates than first mortgage loans and are effective tools to manage debt and have tax-deductible interest. If interest rates are falling, second mortgage and home equity loans can be refinanced much like a first mortgage - if the rate drops with around 1%, it is usually a good time to refinance.

Remember, though, you can't lose your home with credit card debt or a car loan, but failing to make payments on home equity loans does endanger your house.

Mortgage rates hit their lowest since 1955. Ask the home loan experts we recommend Quicken Loans how to take advantage of them.
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