Home Equity Lines of Credit and Fixed Rate Seconds
A home equity line of credit is like a credit card attached to your home. You get a credit limit but only pay interest on the amount that you draw. You can pay it back and redraw it. Home equity lines of credit are adjustable and generally float with the prime rate. Some offer the advantage to partition off and fix the rate on large sums that you may borrow.
Fixed rate seconds are second mortgages where you receive the entire lump sum of the mortgage at closing and the payments are amortized out for the term of the mortgage. Fixed rate seconds generally have terms for 15 or 20 years, although other terms are available. Individuals with credit problems who want to draw equity out of their homes may not qualify for a home equity line of credit and have to use a second mortgage. Rates on second mortgages are substantially higher than rates on first mortgages.
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