A home-equity loan is, in reality, a mortgage on your home, and usually is viewed as a second mortgage. It is important to keep that in mind if you plan on selling the home in the foreseeable future.
If the home is sold, the original mortgage and the second mortgage will have to be paid-off. This would then impact the amount of money available for purchasing the next home.
If you are still paying the original mortgage, taking a home-equity line of credit is the same as taking a second mortgage. The main difference is that with a line-of-credit loan, you only pay interest on the amount you used.click here to read Factors to Consider When Going for Home Loan
If you take a traditional second mortgage, you will have a set amount that you are borrowing, for a specific term and payment, assuming, you get a fixed-interest loan.
Getting a second mortgage, be it a traditional loan or line of credit, is much like getting the first mortgage. There will have to be an appraisal of the value of the home, which is an expense the owner incurs.
Usually, an inspection is required, and some institutions may ask for a broad outline of what improvements you are making. They may want to know if you are adding a room, or just remodeling parts of the existing structure.
Repaying a line of credit loan is tricky in that the monthly payment will increase as you withdraw the money. Thus, budgeting how much you are going to have to pay each month becomes more difficult.
If you have prepared a reasonable budget for what you want to do, taking out a traditional second mortgage may be the better alternative. The application process is the same. The monthly repayment amount will be constant for the term of the loan.read more info for on how to apply line of Credit at http://www.tdbank.com/personal/home_equity_expect.html
Thus, if you take $20,000 as a line of credit, your monthly payment will increase as you spend the money.
However, the funds would be quickly available if you want to take the loan and start the improvements at a later date.
With a traditional second mortgage, you start paying it back within the first 30 to 60 days depending on the policies of the lending institution. However, the payment will remain static or fixed for the duration of the loan. This will help in budgeting how the money will be used, and how much you have to repay each month.
Both approaches are viable and depend largely on whether you have a set plan and a good estimate of the cost, or have several projects, you want to undertake. In the multi-project scenario, the nature of the improvements could be subject to unanticipated price changes.
There are other factors to consider such as the existing value of your home as it compares to the amount you are seeking to borrow and your overall credit rating. Furthermore, if you increase the square footage of your home through by adding a room or an attached-garage, the premium for your homeowner’s insurance will increase.
The final factor to consider is what do you want to do. If you have a specific project in mind and a good estimate of the cost, the second mortgage approach may be better. If you want to update kitchen appliances and bathrooms or install new carpet, the line of credit may work best.
You need to have a priority list and realize that a line of credit is not unlimited. There will be a cap on the amount you will be able to borrow. This will be based upon the value of your home, your income and credit history.