Pros and Cons for Taking the Second Mortgage Loan as a Home Equity Loan

The two most common 2nd position liens are a Home Equity Loan ( HEL) or commonly referred to as a 2nd mortgage or a Home Equity Line of Credit ( HELOC). 

A HEL most commonly has a fixed rate of interest that is 1-3% higher than the rates of 1st mortgages at the time you are taking out the loan.  Some of these loans have balloon payments that are due in 15 years.  

A HELOC is usually an adjustable rate loan that is tied to the prime rate and could be from 1.5% below Prime to 3% above Prime.  The loan will have a period of time, commonly 5-10 years, that the credit line is revolving similar to a credit card.  During that time, if you pay down the balance, you are able to access that portion of the line as you need it.  After the revolving period, it is recast over the remaining term to amortize, or be paid off.

One thing to remember is that a HELOC will report to the credit bureaus similar to a credit card.  If it is maxed out, it can have an adverse impact to your score.