Second Trust Loan or Line of Credit: Which Type of Home Equity Lending is Right For You?

It's exciting to invest in areas of your life like a new house, to take on large home improvement projects, and even to send your kids to college, and most people will hit the ground running when they know where they want to put their money. However, a majority of them will stop in their tracks when they have to start making decisions such as which type of home equity lending is best for their needs. If you're contemplating about whether you should get a second trust loan or a home equity line of credit, here are a few tips to help guide you in the right direction.

What’s the difference between a second trust loan and a home equity line of credit?

When making decisions like this, it’s helpful to start with the basics and gain a broad understanding of what a second trust loan can provide you versus a home equity line of credit.

Home equity lines of credit will give you access to a large sum of money anywhere from a few thousand dollars to a couple hundred thousand dollars. You can draw on this line of credit quickly, and it's more flexible than a fixed rate because it revolves and you can use it again for the loans agreed upon length.

A second trust fixed rate loan will be a one-time amount that you’ll pay off monthly. However, as you pay it off, you won’t be able to use it again for other needs. 

What factors should be considered when making the decision between the two?

When deciding between the two options, you’ll want to consider exactly what your financial needs are.   If you are doing a one-time major home renovation, a fixed rate might be your best bet because you won’t have to worry about the interest rate adjusting.

A line of credit will generally have a lifespan of fifteen years and is ideal for home improvement projects, paying off credit cards, and other significant expenses. However, you'll want to pay close attention to rates because they will adjust, but there will be a cap on high they can reach.

Other factors to consider beyond your purpose of the loan and the rates will be monthly maintenance fees, margin and index, loan to value, and closing costs. As you get closer to deciding which type of home equity lending meets your needs, you should talk to an expert to really dig into the pros and cons for your specific goals, as well as have someone crunch the numbers to see what you're approved for.

Why is now an ideal time to consider home equity lending options?

As the median home prices increase, you'll discover that you may have more equity in your home than you realized, and this gives you the chance to take care of larger home improvement projects than you thought possible. It can also help consolidate debt, pay for your child's wedding or education, and much more!

Once you have a better idea of which loan will be right for your needs, take the time to speak with the professionals at Fed Financial for current rate comparisons and more detailed information by calling (301) 881-5626.