A Second Mortgage vs Home Equity Line of Credit Waterloo

Second Mortgage vs. Home Equity Line of Credit Waterloo

We could all use some extra money, whether it’s for a new car, post-secondary education, a much needed vacation, etc. the list goes on and on. Instead of charging your credit card and getting stuck in a debt with over 20% interest, homeowners can use their hard assets as equity with a home equity line of credit (HELOC) or take out a second mortgage. Before applying for either, make sure you do your research and shop around for the best available options. Beyond research, consult with accredited industry professionals to help you find out which option is most financially secure for you.

Get Some Credit

A home equity line of credit is basically like having a platinum credit card that has a low interest rate and a secured loan, and is flexible. Your credit limit is derived from a set percentage (usually 75%) based off a monetary evaluation of your house. Home equity line of credit terms usually last somewhere between 3–10 years, making the HELOC great for short-term monetary needs or investments. You can deposit or withdraw money from your home equity loan at your convenience until the end of your term. Once the term is up, you have to pay back the balance in its entirety.

On Second Thought...

While a home equity line of credit may seem like a quick fix in the short term, it may not be the right move for you. If you need money for the long term for an investment, acquiring hard assets, etc., then second mortgages become more useful than a home equity line of credit. A second mortgage can give you a percentage of the mortgage principal in cash up front, to be paid back as a second mortgage alongside your first mortgage. Second mortgages usually come with higher interest rates than your first mortgage.

And Now For Something Completely Different

Sometimes you don't actually need a home equity line of credit or second mortgage, and your best bet is to refinance your mortgage. This allows you to renegotiate your mortgage for a more flexible plan that doesn't eat up your monthly paycheque in one go. Often lowering your monthly payments means extending your mortgage plan in the long term, which can help you with your expenses.

Quick Recap

Make sure you stay well informed throughout the whole process and read all you can about the plan you are taking. Many loans come with additional closing fees that can set you back. Be sure to find out any extra costs, budget yourself accordingly, and avoid feeling short-changed. All in all, if you need a short-term fix, you are better off going with a home equity line of credit in Waterloo. If you need a better plan for the long term, take out a second mortgage; and if you need flexibility, consider refinancing your mortgage. Consult with industry professionals such as mortgage brokers, financial advisors, and loan specialists to ensure you are making the right decision for your future.
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