Home equity lines of credit also called as second mortgages is an excellent method of raising additional cash to repay credit card debts, or to carry out few home improvements.
Many people wanting to borrow money usually choose home equity line of credit, or HELOCs. They are attractive bet as you can generate the urgent cash at a reduced interest rate. Another benefit of opting for HELOC, or a home equity line of credit is the tax break you get, but you have to get it confirmed from your lender or accountant.
A disadvantage of HELOCs is that you have to offer your home as collateral. This can put your home at risk if you fail to make the payments on time. Hence it is essential that you give a careful thought to this decision before applying for the loan. Also if you choose to sell your home, it is necessary that you repay the balance outstanding on HELOCs before making the sale.
You can also go for a second mortgage, if you require some cash. Just like the HELOC, second mortgages repay the loan in a lump sum that makes it a fitting option. Second mortgages also carry the extra advantage of making a fixed payment, at a flat interest rate. Most companies levy a lending fee that will change from company to company. These fees depend on the percentage of the loan and are generally called as ‘points.’ If the fee charged by one lender is quite high, always shop around to get the one meeting your budget.
But always keep in mind that taking a second mortgage on your home carries with it some risks. You stand to forfeit your home, if you cannot keep up with the repayment.