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Traditional Mortgages

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Can I be a homeowner? Finding a home Making an offer on a home Applying for a loan Inspections The closing process Real Estate loan glossary Important Resources

Understanding Traditional Mortgages FHA Loans VA Loans Understanding Home Equity Borrowing Against Your Equity Helpful Steps to Take Before Buying Predatory Lending Additional Resources

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Traditional Mortgages

Borrowing Against Your Equity

Many people borrow against their equity. Two options for doing this are a traditional second mortgage and a home equity line of credit.

With both methods, you use your house as collateral—which means that you risk losing your home if you can’t repay the loan according to its terms. The lender decides how much money to make available by considering, in part, how much of the mortgage debt you still owe.

Traditional Second Mortgage Loans: A second mortgage provides a predetermined amount of money that the homeowner is obligated to repay over a fixed period. Second mortgages generally come with fixed interest rates.

Home Equity Lines of Credit: A home equity line of credit (HELOC) is a form of revolving credit. Generally, you can borrow up to a certain amount (the "credit limit") over a predetermined period of time (the "draw period").

The repayment terms of HELOCs vary. For example, many HELOCs are structured so that monthly payments cover only interest for the first ten years.

A HELOC generally carries a variable rate. If you consider a HELOC, you should ask the same questions about how this rate is set (any may change over time) that you would ask when considering any other adjustable-rate mortgage.
If you sell your home, you will have to pay off your HELOC.