Home equity is the difference between what your home is worth and the amount you owe on it. For most homeowners their home is their biggest asset and it usually represents a treasure trove of cash. In 2005 the value of home equity across the US was $11.3 trillion. The percentage of home ownership in 2005 was 69% down slightly from the record 69.2 % in 2004. Almost 124 million Americans own their own home.
When it comes to borrowing money using your home as collateral (home equity) there are basically only two ways to go aside from a reverse mortgage: a Home Equity Loan Line of Credit (HELOC) or a second mortgage. Which one is best for you?
Second Mortgage Home Equity Loan The second mortgage takes the guess work out of how much your payment will be every month-for many a huge factor.
• Cash disbursed up front
• Proceeds are fixed
• Fixed term
• Fixed monthly payments
• Fixed Interest rate
Home Equity Loan Line of Credit Can be used as needed but has several unknowns which can be risky, e.g., how much will my payment be next month?
• Cash disbursed on demand
• Proceeds are variable-like a revolving line of credit
• Variable Interest rate
• Variable monthly payments
• Fixed term
Both loans are secured by second mortgages on the property. The terms of these loans can range from five to twenty years. They are almost always shorter than a first mortgage loan.
The differences on paper seem minimal. The biggest is the interest rate which makes the second mortgage loan more stable, reliable, and preferable over the HELOC especially in a dynamic market.
If you are in the market to borrow money against the equity in your home:
1. Do your homework. Research and study what you are doing.
2. Find the right lender. More research and study.
3. Negotiate fees and points. Pit one lender against the other for your business.
4. Get a second mortgage loan instead of a HELOC.
Remember there is a lot at stake. Don't press the "EASY" button.
Jack Krohn is a leading free lance writer on Home Equity and Mortgage issues with over 35 articles to his credit. He is also the #1 author of Home Security Articles in the country according to Ezine Articles.
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