Easy Equity Line of Credit Versus a Second Mortgage: Understanding the Difference

Easy Equity Line of Credit Versus a Second Mortgage: Understanding the Difference

Both an Easy Equity Line of Credit and a Second Mortgage allow borrowers to gain access to funds that can be used for a variety of purposes, including making home improvements, consolidating debt, and more. It is important to understand the differences between these types of loans and how they might affect your financial goals moving forward.

What is an Easy Equity Line of Credit?

Otherwise known as a HELOC, an Easy Equity Line of Credit is a line of credit extended to a homeowner based on the home’s value, the amount of equity in the home, and the homeowner’s credit score. Like a credit card, the borrower can use as much or as little of the money available in the HELOC, as long as monthly minimum payments are being made. While a HELOC functions differently than a “typical” loan, they are recorded as a first or second mortgage, depending on the borrower’s situation.

HELOCs are very useful because it provides the borrower access to money when its needed, and funds can be used on the homeowner’s timetable. However, it is important to note that this type of loan typically has a variable interest rate. This means your rate, and consequently your minimum payment requirement, are subject to change from month to month. Varying payments may make it trickier to budget for. Though, a benefit of this type of loan is if there is no outstanding balance, no interest is accruing.

What is a Second Mortgage?

A second mortgage allows a homeowner to use the home’s equity and put it to work. It is another home loan taken out against an already-mortgaged property. This type of loan will provide the homeowner with a lump sum of cash based on home’s equity that can be used for any purpose. This type of loan has a fixed rate period at the beginning of the loan, which provides the borrower security of knowing exactly what their payment will be each month.

Like many financial decisions, taking out a second mortgage is a calculated risk. In this situation, a borrower needs to pay their original mortgage as well as the payment on the second.  If payments are not being met on either mortgage, the lender can foreclose subject to state law.

Members of WESTconsin Credit Union have access to some of the lowest mortgage closing costs in the area with fast, local decision making. Whether you are considering a HELOC or a second mortgage, our lenders are here to help. We welcome you to contact one of our knowledgeable Mortgage Loan Originators today.