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Second Mortgage Analysis - Fixed-Rate Equity Loan Versus a Home Equity Line of Credit

People tap into their home equity for a variety of reasons, with the two most common reasons being consolidating debts and making home improvements. The question is whether you should take out a home equity loan (second mortgage) or a home equity line of credit (HELOC). Each has its benefits and drawbacks.

Some of the advantages of both home equity loans and home equity lines include lower interest rates and potential tax savings, and both offer interest only payment options in case you are short on cash. With a home equity loan, you get a lump sum at the beginning of the loan that you start paying back immediately. A HELOC gives you a revolving, variable interest rate credit line that you don't start paying back until you start using the line of credit.

According to the Federal Reserve, home equity lines of credit annual percentage rates (APRs) are based solely on a publicly available index (such as the prime rate published in the Wall Street Journal or a U.S. Treasury bill rate). However, it is an adjustable rate mortgage (ARM) loan. With rising interest rates, they've gotten a lot more expensive, doubling to 8 percent in the past three years.

The Federal Reserve states that APR for traditional second mortgage loan takes into account the interest rate charged plus points and other finance charges. However, because you are paying a fixed home equity rate instead of a variable rate, your payments will be the same throughout the life of the loan, which makes financial planning because the payments won't fluctuate with interest rate changes.

Which loan you choose depends on your individual financial circumstances. A HELOC can be useful for people who need fluctuating amounts of money to pay recurring expenses or a short-term financial backup plan, but may not be the best choice for someone interested in long-term debt consolidation or someone who needs a set amount for a specific purpose, such as a home addition.

Maria Ny is an experienced free-lance writer. She writes articles covering a broad range of subjects ranging from Bankruptcy Reform, Credit Repair to mortgage refinancing. Check out her informative articles online at Nationwide Home Equity Loans.

To learn more and get accurate rates quotes 2nd mortgages and home equity loans from loan professionals online please visit the loan resource center at Second Mortgage Loans or check out Home Equity Lines.

More Useful Resource and Updates on mortgage company home mortgage loans mortgage refinancing

• BofA in mortgage lender settlement (Financial Times)
  Bank of America has agreed to settle multi-state claims of deceptive and predatory lending practices against Countrywide Financial , the mortgage lender, in a deal that could result in a cut of up to $8.4bn in interest rate and principal payments for homeowners.



• Banks slash home loan rate (Perth Now)
  THE big four banks have all reduced their variable home loan rate by 80 basis points, passing on most of the Reserve Bank's full percentage point cut.



• Countrywide Settles Fraud Cases for $8.4 Billion (Update1) (Bloomberg)
  Oct. 6 (Bloomberg) -- Countrywide Financial Corp. , the home mortgage lender acquired by Bank of America Corp. in July, will offer interest rate and loan principal reductions plus other distressed borrower relief valued at $8.4 billion to settle consumer fraud complaints from 11 states.



• Big interest rate cut tipped (The West Australian)
  Home borrowers are tipped to see the biggest rate cut in seven years on Tuesday as global financial market turmoil puts pressure on bank funding costs.



• Rate cut hits home (The Age)
  The Wright family are among the beneficiaries of the Reserve Bank?s decision to slash interest rates.



• Interest rate relief but not much (Adelaide Now)
  HOME owners are likely to miss out on half the interest rate cut expected to be announced by the Reserve Bank today.

• East West Mortgage Co.
  Providing online mortgage refinancing loans, purchase programs, and interest rate quotes.



• Mortgage.com
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