Should you consider taking out a second mortgage instead of a home equity line of credit or even refinancing your mortgage with cash back? Each type of equity loan has advantages and disadvantages over the others. Here are tips to help you decide which type of equity loan is right for you.

Second Mortgage Loans

A second mortgage loan has several advantages over home equity lines of credit. The main advantage is that a second mortgage comes with a fixed interest rate where a home equity line of credit has an adjustable interest rate. The disadvantage is that these loans have higher interest rates than your primary mortgage and you will have to make two mortgage payments every month.

Home Equity Lines of Credit (HELOC) Loans

Equity lines of credit offer the greatest amount of flexibility for borrowers. The loan works just like a credit card that is secured by the equity in your home. These loans come with variable interest rates and are the most expensive loan option for borrowing against your equity. The ease of access to the equity is a downfall for many homeowners that are tempted to spend more than they intended. If you lack self control when it comes to your finances, steer clear of this home equity option.

Refinance Mortgage with Cash Back

Refinancing your mortgage with cash back is the most affordable option for most homeowners. Because you are refinancing your primary mortgage you will qualify for a much better interest rate. When you refinance your mortgage and take cash back you will borrow more than the balance due on your existing mortgage. The difference between your existing mortgage and the new loan amount is what you will receive in cash at closing. To learn more about your mortgage and equity loan options, register for a free mortgage guidebook.