A California Home Equity Loan is essentially a California Second Mortgage Home Loan because it is a real estate loan recorded after the first mortgage was recorded. That means it is in second postion as determined by date of recording.
There are several advantages to getting a California Home Equity Loan instead of a California Second Mortgage Home Loan:
- The interest rate is adjustable and is usually based on the prime rate. Prime rate is a short term rate that responds quickly when the Federal Reserve lowers rates.
- A California Home Equity loan payment is "interest only". There is no principal pay down included in the payment which keeps your payment lower.
- A typical home equity loan has the interest only provision for 10 years and then allows 15 more years of principal and interest payments, amortizing to zero balance at the end of 15 years.
- You pay only for the money you actually use with a California Home Equity Loan as compared to a California Second Mortgage Home Loan which requires you to take the full amount of your loan whether you need all of it now or not.
- The other thing about a California Home Equity Loan is that the credit bureaus classify it as a revolving credit line instead of a mortgage loan and it may therefore affect your credit score.
For example, if you have a $50,000 home equity line and you have used all $50,000 it will look like a "maxed out" revolving account to the credit bureau’s scoring softwae and you will get hit for some points off your score.
Still, the advantages to a California Home Equity Loan outweigh the disadvantages, especially if the money will be used to make money or improve your property.
Call or email me if you would like to review your situation.
