Do You Need a Second Mortgage or a Home Equity Loan?

When an individual needs to obtain additional funds, he/she may consider obtaining a home equity loan or a second mortgage. However, many people confuse these two financial options and do not have the information necessary to effectively analyze the second mortgage vs. home equity loan consideration. When an individual is considering a second mortgage vs. home equity loan, he/she must be familiar with some fundamental information about each, as they are both suitable for different situations. Though both of these financial opportunities provide individuals with access to necessary monetary reserves, they both function differently. Understanding some basic notes about each is essential for an individual to make an informed, suitable decision regarding which option is appropriate. When considering a second mortgage vs. home equity loan, it is important for an individual to understand that these two financial alternatives provide people with different types of financial security. When an individual obtains a second mortgage, he/she is provided with a specified amount of money, which he/she is required to pay following a detailed schedule. Usually, he/she must make monthly payments for a period of thirty years, though the exact specifications will vary. An individual will also be charged a fixed interest rate. A home equity loan functions more similarly to credit cards, as an individual is provided with a calculated loan. He/she is able to borrow from this loan when necessary. He/she must make monthly payments toward the amount that he/she has used; however, as long as there is a balance remaining on the loan, he/she can use that money. Therefore, if an individual is granted a home equity loan of $50,000, spend $40,000, and subsequently pays the lender $40,000, he/she will still have $50,000 available on his/her loan. A home equity loan is suitable when an individual is going to need excess funds over an extended period of time, while a second mortgage makes more sense if an individual is making one large payment, such as an essential home repair.