There are two types of home equity loans, a second mortgage and a home equity line of credit. A second mortgage would be obtained the same way the first one was except now you will be making two mortgage payments. Mortgage refinancing is getting rid of the first one and only making payments to the next one. However, if you’re having trouble repaying your first mortgage, a second mortgage may not be helpful. A home equity line of credit could work to your advantage. This works like a credit card, you can borrow up to the limit amount and you can just pay the minimum every month. This would be a good financial alternative to help with the mortgage payments.

The home equity line of credit uses your home as collateral too, but as long as you make the minimum payment, nothing will be taken away from you. There is no loan period with a home equity line, you can pay if off for as long as you like. A mortgage has a set time frame and a set monthly payment. This provides some financial flexibility in terms of extra cash lying around. You will be paying interest, but it is more flexible than the mortgage in terms of time periods.

Using your home equity line to make monthly mortgage payments may not be wise in the long run because you are paying interest twice. However, it is a short-term solution until a better solution comes along or until your period of financial difficulty ends.

Most mortgages come with a home equity line of credit equal to a small percentage of the actual mortgage itself. If you want an increase in credit limit, you may want to request it. If you mortgage did not come with an extra line of credit, you will need to apply for one and this will have additional costs similar to that of applying for a mortgage. When applying for a home equity loan, the determinants of your credit limit are the property appraisal and the remaining balance of your current mortgage. It is calculated as a certain percentage (varies depending on lender – usually approximately 60%-85%) of your appraisal minus the remaining balance on your mortgage.

Home equity lines provide a source of immediate cash and can come in handy once in a while. The interest rates are lower than a credit card because your home is used as collateral. As long as you make the minimum payment, you’re safe from foreclosure. How you use the home equity line of credit is completely up to you, no one will care what you do with it as long as you make those minimum payments.