Mortgage / Equity

Equity
Home Equity
Mortgage
Second Mortgage Line of Credit

Getting a second mortgage with a line of credit can give a home owner a flexible means of financing repairs and eliminating high interest debt.

A second mortgage is an additional mortgage a homeowner gets on a piece of property that is already mortgaged. Like the first mortgage the second mortgage obligates the homeowner to make payments composed of a portion of the principal plus interest. The homeowner will have to pay the second mortgage off over a period of years.

Some second mortgages have a line of credit attached to them. The line of credit enables the homeowner to borrow additional money on the property. The amount of credit available is determined by the amount of equity available on the property.

The difference between the line of credit and the mortgage is that the mortgage is a one time payment of money secured by equity in the property. The line of credit is the right to borrow up to a certain amount of money against equity in the house.

What You Need to Qualify for a Second Mortgage & Line of Credit

To qualify for a second mortgage with a line of credit a homeowner will have to have a large amount of equity in their property. Equity is determined by the difference between a home’s value and the amount owed against it.

If a homeowner has a mortgage of $100,000 and a home equity loan of $25,000 on a house worth $200,000. The homeowner has $100,000 worth of equity available for additional borrowing.

There will have to be equity left over after the second mortgage and the first mortgage to qualify for a line of credit. The amount of credit available from the second mortgage line of credit will be a percentage of the equity.

If the amount of equity is small the line of credit will be small. If the amount of equity is available is limited it might make more sense for the homeowner to apply for a bigger second mortgage rather than a line of credit.

Second Mortgage vs. Second Mortgage Line of Credit

There are some advantages that a second mortgage may provide over a line of credit. The amount of credit provided by a line of credit is only a percentage of the equity. The amount of money provided by a mortgage can equal the entire amount of equity available.

Another advantage to a second mortgage is that the interest rate on a second mortgage could be lower. The interest on a second mortgage is more likely to be tax deductible than the interest on a line of credit.

The big advantage to a line of credit is that with a mortgage the homeowner will have to pay all the money borrowed back. With a line of credit the homeowner is obligated to payback only what they borrow and any interest accrued upon it.

A line of credit is better than a mortgage if the homeowner might be facing possible expenses. A mortgage could be better if the homeowner knows they will need a certain amount of money in the near future.