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Fixed Second Mortgage or a Home Equity Line of Credit?

Making the right choice between a fixed or a HELOC

When people look into obtaining a second mortgage, there are two basic options for them:  A Fixed Second Mortgage or a Home Equity Line of Credit (HELOC). Depending on your needs both have benefits and risks.  Below you will find the benefits and risks of both:

Fixed Second Mortgage:

Benefits:
1.  The rate is fixed and your payments never change
2.  You can lower your payment by obtaining a fixed rate mortgage that has a balloon payment in year 15.  In year 15 you would either have to payoff the mortgage, refinance the mortgage or sell the house.
3.  Money obtained could be a tax deduction for you.  Please consult your tax advisor.

Risks:
1.  Payments are usually higher than a HELOC

2.  Can not re-access the money if you pay the loan down

 

Home Equity Line of Credit

Benefits:
1.  Low payments since it’s an interest only loan for a certain period (5-10 years)
2.  Sometimes lenders will offer a reduced rate period (3-6 months)
3.  You can re-access the credit line if you have credit available

4.  Money obtained could be a tax deduction.  Please consult your tax advisor

 

Risks:
1.  Adjustable rate which could cause your rate to move up.
2.  Temptation to access your credit for things that are not necessary.
3.  Since it is considered a “revolving credit balance”, it may affect your credit if you max out the credit line.

  

There are both benefits and risks to having a Fixed Rate Mortgage or a Home Equity Line of Credit.  If you have any questions about which is the best option for you don’t hesitate to ask.

 

Kevin O’Connor
Mortgage Consultant 
www.koloans.com
800.550.5538

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