Closed-End Seconds & HELOCs

Closed-End Seconds

Closed-End Seconds are essentially fixed-rate mortgages that take a second lien position. They are offered in terms usually ranging up to 15 years, and typically will carry a higher rate of interest than the first mortgage. Loans are available amortized over 30 years, with a balloon payment after 15 years. A balloon payment means that the outstanding balance on the loan becomes due and payable in full at that time. With closed-end second mortgage loans you have a fixed payment throughout the term of the loan.

HELOCs

HELOCs, or Home Equity Lines of Credit, act much like credit cards, in that as you pay off the principal balance, you are able to draw on the credit you have available--the difference between your total line of credit and the current outstanding balance (credit currently in use). Draws against the line of credit are usually available during the first ten years. At that time the line becomes, in essence, an adjustable rate loan. Interest is charged based on an index--usually the Prime Rate--plus an additional amount (the margin). The rate charged fluctuates with changes in the index. The monthly payments over the first 10-15 years are typically interest-only payments. The outstanding balance is then paid off over the next 10-15 years with periodic payments including principal and interest--at the current rate based on the index plus the margin.