So you’re thinking about leveraging the equity on your home to obtain a loan. You can either apply for a home equity line of credit or a second mortgage. But which loan is right for you?
A home equity line of credit (HELOC) works in a similar fashion to a credit card but the loan is secured and you have a higher credit limit of up to 80%. You are able to deposit and withdraw to and from your loan at any time provided the entire balance is paid off at the end of your term. This is generally used for short-term cash problems.
A second mortgage on the other hand is geared towards long term investments as you will receive a lump sum of cash upfront.
Like your first mortgage, a fixed amount must be paid over a fixed term. Whereas your first mortgage is on the property amount, a second mortgage goes towards the amount of equity your home has at its current market price.