HELOC vs Fixed Rate
Happy New Year. I’m getting so many inquiries about a second mortgage refinancing, some cash out to pay off some debt. With your interest rates as low as they are, you’re probably not looking for a full refinance. Sometimes a second mortgage can be an advantage. I’m going to go really fast, so hang on to your hat.
First of all, there’s two types of second mortgages, a home equity line of credit or a lump sum fixed rate. They’re both second mortgages, which means they’re going to be in second position behind your current mortgage.
Let’s jump right into it. There’s a home equity line of credit and a fixed rate mortgage. How do you access the money on a home equity line of credit?
It’s a line of credit. Use it when you want it. Pay it back when you want. But you don’t have to take all the money upfront on a fixed rate mortgage. You take a lump sum upfront. However much you borrow, that’s how much you get. The segment rates, the adjustable rate mortgage is applicable to a home equity line of credit.
Right now, those interest rates are a little bit lower than a lump sum fixed rate mortgage on a fixed. It’s a fixed rate mortgage. It can never change. Can’t go up. Can’t go down. Finally, payments on a home equity line of credit, they’re interest only, which makes your payment a little bit lower. You can pay back as much as you want, but the required payment interest only on a fixed rate.
It’s a principal, an interest loan to payments going a little bit higher. If you have any questions about your own situation or a client or friend, please reach out to me any time. Thanks.
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