Homeequity Loan v/s Mortgage (First/Second) ???
Question: Am posting this question on behalf of someone who doesn’t have access to the web.
He currently owns a Condo (fully paid up) which is rented and now would like to buy a house. He was planning to use the refinance money from the condo for the downpayment. He has “excellent” credit rating.
He has been preapproved for the house and the closing date is set for sometime at the end of this month.
A couple of months ago, when there was about $2500/- left to be paid on the rental condo, the broker told him that NO BANK/Lender would give him a second mortgage on the condo and that they would NOT even refiance it.
Just yesterday he received a letter from a national bank stating that he is eligible to receive a “home equity loan” on the condo – and that he is preapproved for 90% of the existing market value.
Question:: What is the difference between 2nd Mtg and Home equity loan? And why would the broker say that NO Bank/Lender would give him the money on the Condo while a national bank just approved an equity loan?
How does it affect the way you pay taxes? Is Interest paid deductable?
Thanks in advance
Answer: A Home Equity loan is essentially a second mortgage but here a few things to note: 1. Home Equity loans with fixed rates are typically not available for 30 year terms like mortgages. 2. Often times the bank/lender will pay the closing costs on home equity loans because they are at a higher interest rate than mortgages. 3. Interest on home equity loans are tax deductible just like mortgge interest. 4. Home equity loans will not escrow for property taxes, you must pay the property taxes on your own. Whereas, mortgages prefer to escrow and will typically charge a few if you want to waive escrow. 5. I’m guessing that the broker didn’t want to mess with what was probably a small loan amount. The smaller the loan amount the less fees he/she will receive. Also, the smaller the loan amount the more it makes sense for the borrower to get a home equity loan with no closing costs than to pay closing costs for a mortgage.
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