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HELOC, Refinancing, and Second Mortgages: Understanding Your Options

February 7, 2023 | Posted by: Ben Moazzez

If you're looking to access the equity in your home, you have several options, including refinancing, taking out a second mortgage, and getting a home equity line of credit (HELOC).

A HELOC is a type of secured loan where you can withdraw funds up to a set limit, similar to a credit card. During the average 10-year draw period, you'll only need to pay interest on what you withdraw, not the full loan amount. After the draw period ends, you'll have to make payments on both the interest and principal. You can get a HELOC with as little as 20% equity and a credit score over 650.

Refinancing your mortgage involves getting a new mortgage to replace your old one, potentially with better rates, terms, and a shorter amortization period. You can use your refinanced mortgage to free up equity and generate cash by getting a higher loan amount.

A second mortgage is a separate loan that you pay back alongside your current mortgage. You can borrow up to 75-80% of your home's value with a second mortgage. To qualify, you need at least 20% equity in your home and a good credit score. However, second mortgages often come with higher interest rates than other options.

Each option has its pros and cons. A HELOC is flexible and only charges interest on what you use, but may have higher interest rates. Refinancing can lead to lower interest rates and faster mortgage pay-off, but may come with prepayment fees. Second mortgages are easy to qualify for, but have high interest rates. It's important to consider both the benefits and drawbacks of each option before making a decision.

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