This topic deals with the advantages of second mortgages as opposed to home equity lines of credit, particularly in light of the instability of todays investment economy.
The procedures and requirements for a second mortgage are very similar to those of the original mortgage. Both are pre-arranged loans and the resources that have been assessed for a first mortgage have the same value in the second mortgage. So in that sense, applying for a second mortgage is an easier procedure. The advantage of taking a second mortgage over applying for a home equity line of credit is the fact that a second mortgage offers either a fixed or a flexible rate of interest.
Since a homes value determines the amount of money that can be borrowed with a home equity line of credit, there is an automatic ceiling on much can be borrowed. The amount of mortgage still due on the home also decreases the amount that can be borrowed. It is possible to borrow as much as desired up to the ceiling placed by the inherent value of your home. Once a portion of the home equity loan has been repaid, it is possible to repeat the borrowing process without applying for another loan. A Home equity line of credit characteristically offers flexibility in interest rates.
The Main Factor is Interest Rates
When taking out a loan, it is always important to look carefully at the interest rates and whether these are variable or fixed. When times are prosperous, it is easy to overlook this key point and not scrutinize it closely.
Keep in mind, though, that you will be repaying the amount of your loan for quite a long time to come and economic conditions can change quickly. If the market takes a downturn, as has been the case in recent months, the interest rates will go up. And if you have taken out a loan with a variable interest rate, then the cost of your loan payments could increase alarmingly.
This has been the case in the recent economic downturn and those who have a loan with fixed interests rates are commending themselves for having made a wise decision because they are saving themselves a lot of money by avoiding higher payments on their loan that are the result of increased interest rates. They can rest assured, knowing that their loan payments will remain the same for as long as they are making those payments.
Taking out a second mortgage is more advantageous than applying for a home equity line of credit because it is not possible to get variable interest rates when applying for a home equity loan. Because todays economic and investment conditions are volatile and unstable, it would be quite easy to find yourself with rising interest rates and increased loan payments if you take out a home equity line of credit.
The best way to find financing is through taking out a second mortgage because this gives you the option of fixed interest rates. This is a very good safety net and offers you increased protection especially considering the economic instability that is so prevalent in todays business world. In this manner you can avoid financial bankruptcy, or even unease, and have both a god standard of living and enjoy lower interest rates while making payments.