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Second Mortgage
Why Take Out a Second Mortgage?
Traditional Second Mortgage
Home Equity Line of Credit (HELOC)
Preparing Your Credit
Preparing to Apply
Understanding Fixed Rates
Understanding Adjustable Rates
Shopping for a Lender
Locking in a Rate
Understanding Points
High-Interest Debt: A Way Out
Paying for College
Home Renovation
Using the Internet to Research
Payment Comparison
An Affordable Monthly Payment
Private Mortgage Insurance
HELOCs and Monthly Payments
The Role of the Loan Officer

HELOCs and the Monthly Payments

Once you have decided that a home equity line of credit is the best type of second mortgage loan for your situation, you may be confused about how much your monthly payment will be. You need to discuss with your loan officer in detail exactly how much you will be expected to pay each month depending on how and when you utilize the line of credit.

If you do not make a withdrawal, you are not required to make any monthly payment at all. However, once you utilize the line of credit, you may be required to pay the interest on the amount you have withdrawn on a monthly basis. Some lending institutions may not require that you do this, but allowing the interest to accrue without making payments can lead to a dangerous situation.

If you plan to make a “balloon payment” at the end of the loan term, you need to know exactly where that money is coming from. Do not depend on some future stroke of luck, such as an inheritance from a relative, to come at the last minute. Never let yourself lose track of how much you owe and how you intend to pay it back. The longer you wait to repay, the more you will owe.

Using credit responsibly is especially important when you choose a home equity line of credit (HELOC) for your second mortgage. If, for example, you use the money to pay off your credit card accounts but then continue to use the cards to run up additional debt, you face the scary situation of being burdened both with repaying your HELOC loan and still having high interest, high balance credit cards.