WHEN YOUR HOME IS ON THE LINE
More and more lenders are offering home equity lines of credit
or second mortgage closed-end loans. These type of loans may
offer a sizable amount of credit, available for use when and how
you please and at an interest rate that is relatively low.
Furthermore, under tax law depending on your specific
situation you may be allowed to deduct the interest because
the debt is secured by your home.
Before taking a second mortgage on your home, you should
weigh carefully the costs against the benefits. Shop for the credit
terms that best meet your borrowing needs without posing
undue financial risk. Remember failure to repay could mean the
loss of your home.
HOME EQUITY LINE OF CREDIT
A home equity line is a form of revolving credit in which your
home serves as collateral. With a home equity line, you will be
approved for a specific amount of credit. Your credit limit is the
maximum amount you can borrow at any one time. The credit
limit is usually determined by taking 75% of the value of your
home and subtracting the amount you owe on your first
mortgage.
SECOND MORTGAGE LOANS - CLOSED-END
Another type of second or junior mortgage is a closed-end loan.
This traditional second mortgage loan provides you with a fixed
amount of money repayable over a fixed period. This type of
loan advances all funds at the time the loan is closed with no
further advances. The loan can be interest following or
precomputed. It is always preferable to have an interest
following loan if you plan to pay the loan off before maturity.
You might consider a traditional second mortgage loan instead
of a home equity line; if, for example, you need a set amount for
a specific purpose, such as an addition to your home.
In deciding which type of loan best suits your needs, consider
the costs under the two alternatives.
WHAT TO LOOK FOR ON ANY SECOND
MORTGAGE LOAN
Look carefully at the credit agreement and examine the terms
and conditions of various plan