Home Equity Personal Loan or Second Mortgage: Which is better for you?

June 21, 2013 | Category: ,

Home Equity Personal Loan Or Second Mortgage?

If you are in heavy debt and looking for relief, you may end up looking at your home for help. Borrowing against your home can be a helpful way to get out of a bad debt situation or to get money to pay for an unexpected expense. There are two major ways to borrow money against your home.

These options are a home equity personal loan or second mortgage.

What is a Home Equity Personal Loan or a Second Mortgage?

Many people confuse and mistake these two concepts for one another. This makes sense as the general idea of both is somewhat similar.
A traditional second mortgage can pay out a large amount of money and the borrower is expected to pay this money back on a regular schedule.
Second mortgages are usually 15- to 30-year loans with a fixed interest rate. With these loans, you receive a fixed amount and you pay it back over time.
A home equity personal loan is not a secured mortgage such as the second mortgage.  And the amount you can borrow is usually a much smaller amount over a much shorter payment period — 2-4 years depending on the amount borrowed.
The whole process is much faster, often completed within the same day as there are no appraisals or legal transactions necessary.  The amount of the loan is based on the value of your house – anywhere from 50 to 80 percent depending on the lender.
There will be a fixed interest rate over a fixed period of time, but some lenders allow open loans which can be paid back earlier rather than later.

 Should you choose a Home Equity Personal Loan or Second Mortgage?

If you are trying to determine which of these options is best for you and your situation, you will need to look at your current financial needs. This will help you determine whether you should choose a home equity personal loan or a second mortgage.

Those who need a larger amount of money for a financial crisis – such as consolidating huge debt – or other larger immediate expenses — may be better off with a second mortgage. This type of loan allows you to borrow the larger monies you are looking for and pay it off over time.
You will be expected to pay back the loan regularly and your home will be held as security until you do. . However, the time of processing a second mortgage is longer than a home equity personal loan. Also, you home will be held as a security when you get a second mortgage.
If you need a smaller amount of money on an urgent basis, you may be better off with a home equity personal loan which will allow you to borrow money against your home quickly — and at less cost as you do not pay for appraisals or legal fees.  You can even expect to receive the money on the a same day..
Regardless of which loan you choose, it is important to find out all of the information about the loan before you agree to terms. Interest rates, repayment terms and other details can greatly impact your decision as to which type of loan you should get, so it’s important to be aware of all of this information before you agree to a loan.
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