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Home Equity Loans / Lines of Credit

Second Mortgage


In general, these types of loans feature a low fixed rate and are paid to the borrower in a single lump sum which is convenient for large-scale expenses such as home improvements. One of the most common uses for a home equity loan is to pay off higher interest balances such as credit card and student loan debt. By consolidating this debt into a single manageable payment you could enjoy better monthly cash-flow and a sense of control over your finances. But bear in mind that debt consolidation only works if you make a break with old spending habits and don’t run up your credit card accounts again. Otherwise, you could be left with two sets of mortgage payments and credit card payments each month!




A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses the line of credit to borrow sums that total no more than the amount, similar to a credit card. At closing you are assigned a specified credit limit that you can borrow up to. During a "draw period" (typically 5 to 25 years), HELOC funds can be borrowed and you pay back only what you use plus interest. Depending on how much you use the HELOC, you will have a minimum monthly payment requirement (often "interest only"); beyond the minimum, it is up to you how much to pay and when to pay. At the end of the draw period, you will have to pay back the full principal amount borrowed either in a lump-sum balloon payment or according to a loan amortization schedule.



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