A home equity loan is synonymous with a second mortgage. Unlike a home purchase loan, the lender gives you cash in return for a stake in the equity of your house. For a house that is already under mortgage, taking another loan on its equity is a second mortgage.
A home equity is a good line of credit that helps borrowers fulfill other pressing financial commitments. If you have large outstanding credit card bills or any other high interest bills, you can take an equity loan on your home and repay these bills. The interest on your home equity loan is much less than the rate of interest charged on outstanding credits. This way, you can save some money and get out of a debt situation.
Many homeowners also opt for a second mortgage. Sometimes interest rates decline sharply. This implies that your old mortgage interest rate will be higher than the current prevalent rates. In such a case, you can opt for a second mortgage and repay your old mortgage. In the long run, you gain substantially as you save on worthless interest payments.
Another option for second mortgage is through home refinance loans, but it takes much longer to process. Processing a home equity loan is faster and you can gain immediate benefits from this line of credit.
Your financial goals are the main driving force behind the loans you secure. A home equity loan can help you do many things besides lower your monthly repayments. It is also a good instrument to consolidate your debts and it can help make your debt tax deductible.
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