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A home equity line of credit (HELOC), like a second mortgage, lets you tap up to about 80 percent of the appraised value of your home, minus your current mortgage balance. The way the money is distributed, however, is much different than a second mortgage.
"Similar to a credit card, you are given a limit and are able to borrow up to that limit for a certain period of time, which can be anywhere from 5 to 20 years," says Litzner. However, because it is set up as a line of credit, you will not be charged interest until you actually make a withdrawal against the loan, although you will be responsible for paying closing costs.
Unlike a second mortgage which can be fixed or variable, a home equity line of credit is always adjustable. "It's of the utmost importance that you understand the terms of the loan," says Litzner. "If, for example, your loan requires that you pay interest only for the life of the loan, you will have to pay back the full amount borrowed at the end of the loan period or risk losing your home."
So which option is better for you? A HELOC is best if your monetary needs will be spread out over a length of time, like if you're renovating your home or paying for a college tuition. A second mortgage is probably best if you need all of the funds at once, as it's a fixed-rate.
For more information on taking out another loan, please contact at 1-800-270-6318.
Century 21 American Homes is one of the fastest growing real estate brokerages serving Long Island, Queens and Brooklyn. To find out more about an exciting career in real estate contact us at careers@c21amhomes.com.
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