| The reasons to consider a second mortgage are as | | | | toward what you owe just as you would on a |
| varied as the programs available to you once you | | | | closed-end second; however, the full amount of the |
| make the decision to tap into your home equity. Some | | | | loan is always available to be drawn on, as long as the |
| popular reasons include college tuition, bill consolidation, | | | | amount you owe and the amount you borrow do not |
| health expenses, and home repairs. When it comes to | | | | exceed the total amount of the original HELOC. |
| borrowing money, these types of loans are favored | | | | Whether a closed-end second mortgage or a HELOC |
| for a number of reasons, not the least of which is the | | | | is right for you is something you, your loan officer, and |
| tax deductibility of all the interest paid on an equity loan. | | | | or your financial planner must decide. If you are |
| Before you start shopping around, however, you | | | | relatively sure that you will need to borrow against |
| should decide whether you want a closed-end second | | | | your equity only one time in the next several years, a |
| mortgage or a home equity line of credit (HELOC). | | | | closed-end second offers the fixed rate and regular |
| A closed-end second, also known as a home equity | | | | amortized payment schedule that ensures you know |
| loan, refers to a second mortgage that is structured in | | | | both how much your payment will be and how long it |
| a very similar way to your first. To borrow using a | | | | will take you to pay off the loan. This kind of |
| home equity loan, or closed-end second, you make a | | | | assurance can be particularly useful if you don't trust |
| one-time choice on the amount you would like to | | | | yourself to spend wisely, or if you tend to buy |
| borrow, close on the loan, and receive a check for the | | | | impulsively and don't want the option of drawing out |
| amount you've chosen. You will have regular | | | | additional funds. |
| payments structured over a period of years, and upon | | | | A HELOC can be most useful if you are taking on a |
| completion of those payments, your home equity loan | | | | project, such as home repair, that has the potential of |
| will be paid in full. If you decide later that you would like | | | | unforeseen expenses. A HELOC offers you the |
| to draw additional funds, you will need to arrange for | | | | flexibility to borrow again and again. You may even be |
| an additional loan with additional closing costs. | | | | able to secure a HELOC that carries a low |
| However, the closed-end second carries a fixed rate | | | | interest-only payment allowing you to borrow more |
| that will never go up and offers a straightforward plan | | | | and still have a manageable payment amount each |
| for paying the money back. | | | | month. Whichever you choose, drawing against the |
| A HELOC, on the other hand, is a line of credit from | | | | equity in your home is sure to save you money on the |
| which you can withdraw money again and again. In | | | | interest you're paying for your purchase power, and as |
| many ways, a HELOC is just like a credit card, but the | | | | always, the interest you pay on any type of home |
| interest you pay is tax-deductible. You will close on a | | | | mortgage is tax-deductible, offering an additional |
| HELOC only one time, but if you decide after a few | | | | incentive. |
| months that you need to withdraw additional money, | | | | Consult your loan officer or financial planner to decide |
| you will be able to do so up to the value of the loan. | | | | whether a closed-end second mortgage or a HELOC |
| That is to say, if you close on a HELOC for $60,000 | | | | would best suit your needs. Once you've made this |
| and over a period of time pay back $13,000 toward | | | | first decision, you'll be well on your way to finding the |
| the principal, that $13,000 is available to be drawn again | | | | right equity loan for you. |
| at any time. You will continue to make payments | | | | |