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.