You have probably heard the ads on the radio or noticed the brochures at the bank for a second mortgage. In fact you may have even heard your friends talking about taking out a second mortgage to pay for some sort of project or major expense. But for some reason you are not really sure what this type of loan is or what it is for?

A second mortgage is essentially a home equity loan. A home equity loan is a secured by the equity in your home. The benefits to a home equity loan is that you do not have to refinance a first mortgage if you have a very low interest rate and in most cases the closing costs are much lower then a standard refinance. There are two types of home equity loans that are available when you take out an additional mortgage on your home.

Types Of Equity Loans

Open Ended Loan: This type of loan functions like a credit card and allows you to borrow money as needed and will in most cases require a cash draw at closing. The common draw amounts are five to ten thousand dollars. And this type of loan commonly referred to as a home equity line of credit often has a variable rate the changes with market conditions. This loan is better for short term cash emergencies and should not be used as a long term financing option.

Closed End Loan: This type of home loan is just like a standard home loan. The amount you borrow is the amount you get at closing and yo make your payments to pay the loan off in a certain time period. This is often better for people who are paying for your childrens college tuition, doing major repair or buying additional properties. It is the best choice for long term financing.

What ever type of loan you chose make sure that you shop for the best interest rate and closing costs. And whatever you do never take out more then yo are comfortable repaying.

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