A second mortgage is a loan with a second-priority claim against a property in the event that the borrower defaults. Interest rates on home equity loans and secondary mortgages are often much lower than those on credit cards and consumer loans. By taking out a second mortgage, homeowners can reclaim their financial freedom, manage their debts and pay them off in a shorter period of time.
There are two types of second mortgages, fixed dollar second loans or lines of credit. In fixed dollar mortgages the entire amount is paid out at one time. These second mortgages may be held at fixed or adjustable rates. Fixed dollar second mortgages are best when all the money is needed at one time.
The alternative type of second mortgages offers the lender a home equity line of credit (HELOC). The main difference is that instead of being paid out at one time, the loan is structured as a line of credit. A line of credit is most convenient when cash needs are stretched out over time.
If you need to make home improvements but lack the money to improve your home, a home equity line of credit can pay for the much needed house improvements that will probably increase the value of your home. The line of credit allows the borrower to draw an amount at any time up to some maximum.
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