2nd Mortgage – Part 2

Do you need a home equity loan?

A home equity loan, or an HEL, is a lump sum of cash that’s repaid at a fixed rate over a set term. Now a home equity line of credit, or a HELOC, allows the borrower to withdraw money as needed. It’s repaid over time with an adjustable rate of interest. It’s a popular way to finance home repairs and renovations with interest rates lower than credit cards and some other types of financing. You have to calculate whether you can realistically manage both payments. Should mortgage rates drop, a cash-out refinance may be a better option. Closing costs might be higher, but the rates are usually lower than home equity loans or HELOCs.

If you’re determined to use a 2nd mortgage, research lenders and know they’ll want a debt-to-income ratio of less than 43%. Whoever holds your original mortgage will have your record of payments and may offer a competitive rate. Study reviews, rates, fees, and upfront and closing costs. Avoid any prepayment penalties. You’ll need an official home appraisal, proof of current debt and income, and a credit score above 620. Don’t hesitate to seek the advice of a trusted acquaintance before signing to close the loan. The interest rate can be tax deductible if the loan is used to buy, build, or substantially improve the residence that secures the loan. The risks include added debt, the risk of foreclosure, and variable rates with HELOCs. So be careful. Borrow with constraint to avoid getting yourself into more debt problems.

Now if you’re burdened with credit card debt, let Christian Credit Counselors help. They’ll create a debt management plan specifically for you. For more information visit crown.org/ccc.