2nd Mortgage Vs Line Of Equity
I want to know if it is more advantageous to take out a line of equity or a 2nd mortgage loan in order to purchase a 2nd home to rent.
I've noticed that most people posting refer to lines of equity instead of 2nd mortgages. I understand that 2nd mortgages are fixed with higher interest rates as opposed to lines of equity.
Your help and knowledge is much appreciated
The reason I use equity lines is that as I pay the debt down, I can still access the money any time I need it. If I get a second, I can only use the money once, and when I make my payment, it's gone. Hope that helps - Zach
Hi Zach,
Thanks for your reply. I assume that you would want to have access to the money for emergencies, repairs or to make another home purchase? But I'm concerned that because the interest rate is variable that it might go up very high.
Well, you're right, and I won't pretend that I know all of the details pertaining to these loans, but I'm pretty sure they can only go up so much a year, and they might also have a cap. Either way, you can always bail and get a mortgage before things get too out of hand, I suppose. In the real world, I don't really see that happening, but you're right, it could. Oh, and yes, those are all good reasons for keeping the money available. See ya - Zach
A Home Equity Line of Credit(HELOC) is far more flexible and versitile than a second mortgage. The fact that you can treat it like a checking account allows you to make withdrawls and deposits regularly. They also tend to have lower interest rates. If you shop around you should be able to find one that has a low fixed rate for a period of several years before it becomes variable. You can always refinance into a new HELOC with a fixed introductory rate if your original rate gets too high.
Thank you Zach and Mainline, your advice is very helpful!
I am a mortgage broker.
I agree, the home equity line of credit is much more flexible. You only pay interest on the portion of the money taht you are using. Its an excellent way to have money ready to go when an oportunity or emergency comes up. The rates are also usually dependend on your credit score and Loan to value. So if you have a high credit score,a nd a lot of equity in your home, you can get a pretty decent rate.
Thanks Newbie. It's great to get this type of confirmation from someone in the industry. Much appreciated.
I've found LOC rates to be competitive or better than 2nd mortgage rates. Why would anybody get an inflexible 2nd?