Home equity loan or second mortgage?

[karliebug]

what is the difference between the two? I want to consolidate credit card debt and pay for my daughters wedding.

 

[cdrn1]

Good question. Our house is paid off. I am too lazy/busy/indifferent to research. Our heloc matures next month. What to do?

 

[kydisneymom]

I work at a bank and at our institution:

A Home Equity Loan is a revolving line of credit with a variable rate that has a 10 yr term that you use at your decretion based upon your available credit at any given time.

A Second Mortgage would be more of a fixed rate loan with a shorter term for a one time purpose so to speak.

Hope this helps

 

[cglaura]

Have you looked into an unsecured personal loan?

Worst case absolute scenario, something happens and you can't repay....you can lose your house. I know nobody expects it to happen to them, I'm just saying, what if.

If you default on a credit card or unsecured loan, you will tank your credit and have to repay probably a much higher rate when it gets sorted out.

But you will continue to have a roof over your head.

Can you scale back the wedding. Of course I have no idea the details, but there should be at least 2 or 3 incomes to go towards it: you, and one of the kids getting married (or both if they are both employed). I know it would be lovely to be able to spring for the whole thing, but risking your home to do so, is something you should really think about.

But congrats on the upcoming wedding though! I don't mean to sound like a debbiedowner, just throwing out options

 

[karliebug]

ooh, it will definitely be a budget wedding for sure. we have lots of credit card debt and i thought that if I was consolodating I could take out a little extra to help them with the wedding. They will be paying for some of it too but he is in the air force (just finished basic training) and she is a college student.(Which is another expense)

 

[aggielawyer]

I agree with cglaura, I wouldn't risk my home to pay off credit cards. The problem is that if you don't change the behavior that caused you to run them up, then a few years down the road you'll have run them up again AND you'll have a heloc or 2nd mortgage to pay off. Please check out Dave Ramsey's "The Total Money Makeover"...at least read it before you make your decision.

 

[dvcgirl]

I agree with cglaura, I wouldn't risk my home to pay off credit cards. The problem is that if you don't change the behavior that caused you to run them up, then a few years down the road you'll have run them up again AND you'll have a heloc or 2nd mortgage to pay off. Please check out Dave Ramsey's "The Total Money Makeover"...at least read it before you make your decision.

Completely agree. It's very rarely a good idea to pull home equity loans to pay off CC debt (and roll in a wedding). The CC debt returns in over 2/3 of cases where people to do this within 2 years. The odds are terrible.

Hey aggielawyer....not to hijack the thread, but I love the miniature schnauzer in your pic! We have one too....love our little guy!

 

[rstamm]

what is the difference between the two? I want to consolidate credit card debt and pay for my daughters wedding.

A home equity loan has no fees compared to a mortgage.

We have a fixed home equity which you can get for around 5% and a line of credit which is 3%.

The interest is tax deductible too, so the rate will be a lot lower then your credit card and you can deduct it.

If you are a responsible person it is the way to go.

 

[MrsPete]

what is the difference between the two? I want to consolidate credit card debt and pay for my daughters wedding.

Essentially they come down to the same thing: With either one, you are borrowing against your house, putting it at potential risk.

I would not do that for a wedding. They'll be just as married, no matter what kind of wedding they have. Shop consignment stores or $99 sales for a dress. Make it a punch-and-cake reception. Consider a Christmas or Easter wedding -- the church'll already be decorated with poinsettas or Easter lilies. Especially if you're already burdened by credit card debt, don't go farther into debt for one day's celebration.

 

[bumbershoot]

ooh, it will definitely be a budget wedding for sure. we have lots of credit card debt and i thought that if I was consolodating I could take out a little extra to help them with the wedding. They will be paying for some of it too but he is in the air force (just finished basic training) and she is a college student.(Which is another expense)

You could be my dad and stepmom back in '03...

They had a mortgage, they had CC debt. Their kids were getting older. My dad offered to pay for my wedding. I figured that if he offered, it meant he had the money.

I figured out well down the road, well after the wedding, that he didn't.

They spent a few years cycling down more and more...the wedding put a strain, I assume, on what they could put towards their past CC debt, they did something really bizarre with their mortgage, he recently told me taht they lived in 2007 entirely off of their credit cards.

Somehow they managed to keep from bankruptcy or selling their house...but a few months ago he told me that they pay over 1000 per month just on *interest* towards their credit cards. That's what he considers to be doing better...

It's a scary idea to put your house "out there" for unsecured debts. I would much rather steer you towards Dave Ramsey's site and livinglikenooneelse.com to help you start paying those CCs off one by one, withOUT consolidating them, and finding the money for this wedding in other ways...



But for a start, check this book out from the library, halve the budget, and go from there, if you really feel strongly about giving them a wedding. Helped me a lot! Alas I sold it a few years ago, otherwise I would have sent it to you.

 

[ruadisneyfan2]

A home equity loan has no fees compared to a mortgage.

We have a fixed home equity which you can get for around 5% and a line of credit which is 3%.

The interest is tax deductible too, so the rate will be a lot lower then your credit card and you can deduct it.

If you are a responsible person it is the way to go.

I thought of these too. It seems appealing in that the interest rate is sooo much lower than a credit card and also tax deductible.

The scary part is that if you use credit cards again, you set yourself up for disaster. I guess depending on the amount of debt, one could argue your definition of 'responsible person'.

 

[ruadisneyfan2]

You could be my dad and stepmom back in '03...

They had a mortgage, they had CC debt. Their kids were getting older. My dad offered to pay for my wedding. I figured that if he offered, it meant he had the money.

I figured out well down the road, well after the wedding, that he didn't.

They spent a few years cycling down more and more...the wedding put a strain, I assume, on what they could put towards their past CC debt, they did something really bizarre with their mortgage, he recently told me taht they lived in 2007 entirely off of their credit cards.

Somehow they managed to keep from bankruptcy or selling their house...but a few months ago he told me that they pay over 1000 per month just on *interest* towards their credit cards. That's what he considers to be doing better...

It's a scary idea to put your house "out there" for unsecured debts. I would much rather steer you towards Dave Ramsey's site and livinglikenooneelse.com to help you start paying those CCs off one by one, withOUT consolidating them, and finding the money for this wedding in other ways...



But for a start, check this book out from the library, halve the budget, and go from there, if you really feel strongly about giving them a wedding. Helped me a lot! Alas I sold it a few years ago, otherwise I would have sent it to you.

I hope your story has a happy ending!

 

[Cooky]

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[disneychrista]

Never in a million years would I add to the debt that I already had to pay for something that in the end is not essential. IMO a "wedding" is not essential.

 

[mom of princessx2]

We have done both. We did the fixed rate 2nd mortgage to pay off debt. It was only $5000 and at the time I think the rate was 7.99%. Much better than the credit card rate and we paid it off in 2 years. Now we have a HELOC. We used it to pay off some debt and we will probably draw from it to do some work on the house in a couple of years. HELOC rate is currently 3.99% at our credit union.

You will probably get a lower but adjustable rate with a HELOC and you would be able to draw on it in the future if needed. However, the second mortgage will have a fixed rate, fixed payment and fixed term.

 

[mrsklamc]

Like others, I'm not a fan of the idea of putting up your house for CC debt. BUT-

IF you decide to go ahead with it, PLEASE go to a credit union and see what they can do for you. We went into ours today just to see what they could do with our mortgage. They are going to refi us for FREE. No closing costs, and they are paying for the appraisal.

 

[emmababy]

They are both 2nd mortgages. They go into 2nd lien position on your house- hence 2nd mortgage.

Cashing out or consolidating debt is quite hard to do these days unless you have A LOT of equity in your home.

 

[Tarheel girl 1975]

They are both 2nd mortgages. They go into 2nd lien position on your house- hence 2nd mortgage.

Cashing out or consolidating debt is quite hard to do these days unless you have A LOT of equity in your home.

Technically, you can get a home equity loan on home that you already own. In that case, the loan would be in 1st lein postion.

 

[seashoreCM]

If there is already a (one) mortgage against the property then "taking out a second mortgage" and "taking out a home equity loan" mean the same thing.

Sometimes but not always you can lower your total interest costs or lower your total monthly payments by taking out a home equity loan that is big enough to pay off the first mortgage loan and have borrowed cash left over, say, to pay off other anticipated debts like college tuition or pay off other existing debts and this maneuver is the same thing as "refinancing". The result is a new first mortgage.

I do recommend taking out a home equity loan at a much lower interest rate than a bunch of credit card balances and using the money to pay off the credit card balances. But this requires a lot of discipline on your part not to rack up more credit card balances.

A different animal is the home equity line of credit (HELOC) where the balance you owe gets bigger or smaller depending on checks you write and monthly payments you make, contrasted with the (regular) equity loan where you borrow the entire amount up front and make monthly payments and the balance only goes in the down direction, gradually. It, too, is secured by a (usually second) mortgage on the property.

Disney hints: http://www.cockam.com/disney.htm

 

[Willard01]

what is the difference between the two? I want to consolidate credit card debt and pay for my daughters wedding.

The only difference is that you can use a second mortgage as part of your home's down payment or apply after you have moved into your* house. Home equity loans can only be secured when you have actually bought the house.