Second Mortgage or Home Equity Loan
REM #F675
By Ilyce R. Glink
Summary: A reader is wondering the best way to finance their home renovation work. Ilyce explains home equity loans and lines of credit.
Q: We’re trying to decide how to pay for some home renovation work that
must be done. Which is better: taking out a home equity loan or a second mortgage?
We live in East Atlanta and our house is worth close to $300,000. We owe $140,000 on our mortgage. We would like to add a master bedroom and bath and a new kitchen. We plan to stay in the house for a number of years.
I have 700+ credit score.
A: Let me clear something up: A home equity loan is a second mortgage. It's
called a “second” mortgage because if something happens and you
stop making your payments, and the bank forecloses on the property and sells
it, the home equity loan is repaid only after your primary mortgage is paid
off from the proceeds.
You should price out home equity loans (where you get the lump sum) or a home
equity line of credit (where you draw down the cash as you need it) and see
which makes more sense for your financial situation.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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