Can someone please tell me the difference between a 2nd mortgage, home equity loan and refinancing?

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  1. Reply
    February 17, 2011 at 2:36 am

    If you own a home with a mortgage and you get a home equity loan the lender will place a 2nd mortgage on your home to secure the loan.

    When you refinance you replace the mortgage (usually the first mortgage) with a new loan.

  2. Reply
    February 17, 2011 at 3:23 am

    Yes. Home Equity Loans are more like credit cards and affect your credit that way. They are also almost exclusively adjustable rates. HELOC’s are generally available “for free” from most major banks. Know why it’s free? Because they are going to make a TON of money from you as long as you have the loan.

    A second mortgage is treated like a mortgage on your credit (better than a credit card). The rates will be higher than a refinance. You must, like a HELOC, have available equity to get a second loan.

    A refinance pays off the existing first and second mortgage (usually) and any other debt so long as the value is there in the home. Some people refinance to pay off other more expensive debt but that usually is not a wise decision. You do not need to have equity in your home if you qualify for a full value refinance.

  3. Reply
    Matt K
    February 17, 2011 at 4:20 am

    2nd mortgage = the second mortgage on your house if you currently also have another mortgage in first lien position. The 2nd mortgage is in the second lien position.

    Home Equity Loan = A loan obtained by mortgaging the equity in your home. Can be term or open end credit and either a first or second mortgage, depending on whether a current mortgage is in place.

    Refinance = The act of satisfying and replacing an existing loan with a new loan. You can refinance and get a home equity loan for instance.

  4. Reply
    February 17, 2011 at 5:06 am

    A home equity loan is a 2nd mortgage if you have an original mortgage you’re still paying off.

    If you’ve no mortgage and you get a home equity loan then you’ve just acquired a mortgage.

    Refinancing is when you get a new mortgage to pay off one you already have. Usually at a lower interest rate or to stop an ARM loan from killing your pocket book.

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