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Home Improvement Loan Options: HELOC vs. Second Mortgage

by Gil Mackey
CMR Columnist

If you have a mortgage with a low interest rate, the last thing you want to do is change it, especially since rates have gone up in the past few years. Compare a second mortgage with a home equity line of credit to see which works best for you.

Getting a Second Mortgage

When you refinance your mortgage, you replace your existing home loan with a new one. With a second mortgage, which is what you should consider if you have a low rate, you are actually taking out a new loan against your home. Your mortgage lender takes into consideration how much equity you have in your home, your debt-to-income ratio, and your income, among other factors, to determine the amount for which you qualify. With a second mortgage you take out a home improvement loan in one lump sum. Most second mortgages are fixed-rate loans with a 15- or 30-year term, but your lender may also have other options.

The Home Equity Line of Credit

Frequently, when you talk about a home improvement loan, many mortgage lenders offer a home equity line of credit (HELOC). The same factors are used to determine your eligibility for the HELOC as a second mortgage, but the loan comes in a different package. Instead of getting your home improvement loan in one payment, you open a line of credit--much like a credit card--that you can use whenever you want. For home improvement projects where you're not sure exactly how much you need to borrow, or that can take a long time to complete, the home equity line of credit is often the ideal solution.

Talk with your mortgage lender about both options to find out which works best for you. Don't forget to consider the costs and whether the payments fit in your budget.

About the Author
Gil Mackey has been a writer and artist for the past twenty years. In addition to freelance writing for QuinStreet he writes for his local paper, and lives with his two children in Nevada.

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