Equity business lines of credit and other mortgages
There is a significant difference between the home equity lines of credit and second mortgage. However, both have similar way of approval and purpose. But both of them differ in terms of how the loans are paid out and handled by the lender.
The home equity lines of credit are a revolving credit option which include home as collateral. The borrower can borrow up to a certain prefixed amount and repay the credit in monthly installments.
A second mortgage loan is a typical traditional loan plan in which the loan amount is paid in a lump sum amount after the maturity of the period.
Lines of credit do not require fresh contracts for subsequent borrowings. Until the maximum amount limit is reached the borrower can get funds without signing fresh contracts. In case of second mortgage the exact amount is mentioned in the contract. Therefore for additional funds an entirely new loan contract has to be signed between the lender and the borrower.
Both the credit options are used by the borrowers depending upon their needs and requirements. Both have a similar advantage of security. The lenders are secured with collateral therefore the rates of interest are similar. The house is at risk in both the cases.
People rely on home equity lines of credit for emergency funding whereas second mortgage loans are used by the borrowers as an obvious option.
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