Debt Consolidation Into a Home Equity Loan or Second Mortgage

Did you worry about high interest debt? Consider consolidating those high-interest credit cards and other bills into a home equity loan, also known as a second mortgage. When you finance your debt with a secure loan, such as a home equity loan, you qualify for much lower interest rates. In early 2007, rates on a home equity line of credit were around 8%.

Home Equity Loan or Second Mortgage?

Home equity loans and second mortgages are two different types of loan products that take advantage of your home equity. A home equity loan, or HELOC, has a line of credit from which you can get an adjustable rate. These rates are tied to the prime rate and can change daily or monthly, depending on your loan agreement. They also have shorter terms, generally 5 years. After that, you must either make a balloon payment or convert it to a fixed-term loan.

Rates and conditions

Second mortgages can have fixed or adjustable rates. Adjustable-rate second mortgages change less often than HELOC loans, usually monthly or quarterly. Its terms are flexible too, so you can choose between 5, 10, or 30 years to pay off your loan. Interest on both types of loans can be deducted from your taxes if you qualify.

Which Consolidation Loan Is Cheaper?

A consolidation loan can be affordable with either a low monthly payment or low interest payments. For the lowest monthly payment, a second mortgage is your best option with its extended loan terms. But for the cheapest overall loan, a home equity loan is your best option. With low, short-term fees, you can pay off your debt quickly and limit your interest payments.

But there is wide variation in what lenders charge for both home equity loans and second mortgages. Rates can vary by several percentage points. Rates can also differ by hundreds, even thousands of dollars with a large loan.

The only way to determine who has the best loan for you is to request loan quotes from several different lenders.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *