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 Is a home equity loan and second mortgage the same?
  Paying off debt with a home equity loan
By the EchoBay Loans Expert
 Is a home equity loan and second mortgage the same?
Dear EchoBay Expert: What's the difference between a home equity loan and a second mortgage?

Dear Loyal Reader: It is not uncommon for consumers to believe that there is a difference between a home equity loan and a second mortgage, but there is actually no difference between the two. All home equity loans are second mortgages, although not all second mortgages are home equity loans.

In addition to home equity loans, home equity lines of credit are also considered second mortgages. A second mortgage is any loan that places a lien on your home that falls second in position to the lien placed by your primary mortgage lender.

When you take out a home equity loan, your lender places a lien against your mortgage for the amount of your home equity loan, but that loan sits second in place to the lien placed by your primary mortgage holder, making it a second mortgage.

If you were to default on your loan and your home were to go into foreclosure, your debt to your primary lender would be satisfied prior to the debt owed to the lender who issued you your home equity loan.



 Paying off debt with a home equity loan
Dear EchoBay Expert: What are the pros and cons of using a home equity loan to pay off my credit card debt which totals $8,000 and my car loan which I have $5,600 left to pay off?

Dear Loyal Reader: There are two pros to using your home equity loan to payoff credit card debt and your car. First, you can typically deduct the interest on your income taxes. You should check with your tax advisor as certain rules do apply but most homeowners will be able to deduct the interest.

Second, home equity loans generally have very attractive interest rates. The rates are most likely lower than your current car loan and almost definitely lower than the interest rate on your credit card. Coupled with the tax savings, the rate is even lower.

There are, however, several cons to using your home equity loan for this. First, your credit card debt is unsecured. If you don't pay, the credit card company can't take your home away from you. However, once you roll your credit card debt into your house, your lender can decide to foreclose. This is by far the biggest con to using a home equity loan.

Second, you should look at an amortization schedule for your vehicle. With vehicle loans, you pay the majority of the interest in the first few years. If you are already past this point in your loan, it is unlikely you would save very much by refinancing.

If you have an excellent credit history and have a reserve set aside in case of emergencies, a home equity debt consolidation loan can be a good choice. Just be very aware of the fact that you are putting your home at risk.


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