| Home equity mortgages or loans, whether in the form | | | | depending on the size of the principal borrowed and |
| of a second mortgage or secured line of credit, are | | | | the homeowner's circumstances. Just like a first |
| secondary mortgages. That is, when a home is sold | | | | mortgage regular payments - monthly, bi-monthly or |
| home equity loans will rank after the first, or primary, | | | | weekly - will be scheduled. |
| mortgage which is on the property, and will be paid out | | | | In contrast, a secured line of credit acts much like a |
| only after the primary mortgage has been settled. | | | | credit card, although the balance of the outstanding |
| When a mortgage or loan ranks lower in priority, the | | | | loan will be secured against a home or other real |
| cost to the borrower in terms of the interest rate will | | | | property. Because this is a secured line of credit - |
| (except in times of wildly fluctuating interest rates) be | | | | unlike an unsecured credit card loan - secured lines of |
| higher. As at least the first mortgage on the property | | | | credit come with substantially lower interest rates than |
| will be paid off before a second mortgage, creditors | | | | your typical, non-secured credit card. Like a credit card, |
| factor in the added risk that a home's value may | | | | there will be a minimum monthly payment and a fixed |
| decrease in value, leaving them holding the bag if there | | | | limit on how much credit is available. In contrast to a |
| is not enough equity remaining in the property to cover | | | | second mortgage, cash is drawn out from a secured |
| all mortgages and liens on the property. Accordingly, | | | | line of credit in tranches, or on an as needed basis. |
| the interest costs on second mortgages will usually be | | | | Provisions for repaying some or all of one's secured |
| higher - sometimes, substantially higher - than the | | | | line of credit are usually quite liberal, unlike a second |
| borrowing costs for a first mortgage. | | | | mortgage which will typically have a set amount (15% |
| Second Mortgages versus Secured Lines of Credit | | | | is typical) that can be paid off, over and above regular |
| Second mortgages and secured lines of credit are | | | | payments, to effectively shorten the amortization |
| both, technically speaking, home equity loans. That is, | | | | period and save borrowing cost. |
| both types of instrument are secured against real | | | | Uses for Home Equity Loans |
| property. The equity represents the difference | | | | Consumers access home equity loans for a variety of |
| between what a property is worth were it to be sold | | | | reasons. Typical uses for home equity loans include |
| on the open market, and all other loan instruments, | | | | loans made for major home renovations, loans for |
| mortgages or liens that are secured against the | | | | large consumer purchases such as a boat or trailer |
| property (and which are typically registered on the | | | | and debt consolidation, although home equity loans can |
| property's title) are paid off. The primary differences | | | | be accessed for a wide range of other uses - such |
| between second mortgages and secured lines of | | | | as paying for a child's education, financing a wedding |
| credit are in the timing and methods of how the | | | | or funeral, or increasingly using built up home equity for |
| money is borrowed, and how the loan under the | | | | business and financial investment purposes. |
| mortgage or line of credit is paid back. | | | | Interest rates and loan terms will vary significantly |
| A second mortgage is - just as the name implies - a | | | | depending upon the specific type, size and details of |
| mortgage that in virtually all respects is like the primary | | | | the second mortgage or secured line of credit one is |
| mortgage a homeowner uses to purchase his or her | | | | negotiating, as well as the borrower's circumstances |
| home. Although the amount under a second mortgage | | | | and the property the loan will be secured against. |
| will typically be less than that for a first mortgage and | | | | Talking to an experienced mortgage broker regarding |
| will command a higher interest rate as it ranks second | | | | your particular circumstances and needs is highly |
| in priority on title, in most other aspects the two | | | | recommended when considering whether to tap into |
| instruments are virtually the same. Most usually, a | | | | your home's built up equity, Comparison shopping |
| second mortgage will be paid out in a lump sum to the | | | | utilizing a broker's services and expertise will help you |
| borrower, and just like a primary mortgage, will have a | | | | determine the financial instrument that best fits your |
| fixed or variable interest rate as well as a defined | | | | needs and has the most generous terms. |
| amortization period - typically from five to thirty years | | | | |