Using a home equity line of credit (HELOC) as a second mortgage can save you the costs associated with private mortgage insurance since there is no such thing as HELOC insurance. When you are considering a loan to take on a renovation project or to maybe pay off some high interest credit cards, your options are typically to obtain a second mortgage or a HELOC. While a HELOC is tied to your home equity, it has more flexibility in how the funds are distributed as opposed to a second mortgage.
No HELOC insurance means cost savings
The points that are paid on a mortgage refinancing basis or a second mortgage basis can vary. The one thing you can say for certain is that private mortgage insurance is going to cost you money. One of the most attractive things about a HELOC is the cost savings that are realized through not having to pay a lot of the fees usually associated with a second mortgage.
HELOCs are designed to give the homeowner a line of funding that is tied to the home equity present. Part of a HELOC’s attraction is the flexibility in how the funds are distributed. Another attractive feature is the relatively low fees at inception unlike most mortgage refinancing products. A second mortgage usually has a fixed rate which can be an advantage but if you check with your lender, a fixed rate HELOC may be an option available to you.
If a HELOC is in your future then be certain to do your homework. Compare the fees associated with the HELOC that the lender is offering with the fees and structure of a second mortgage refinancing loan. Whenever you are making financial decisions of this magnitude you should have as much information at your disposal as possible. In these instances you will usually find that having no HELOC insurance will mean some sort of cost savings for you.