Interest-Only Second Mortgages

Homeowners who are looking for a short-term infusion of money will find an interest-only second mortgage of true benefit. If you need money for a variety of things, including juggling expenses between jobs, or making ends meet until your yearly salary review, an interest-only second mortgage in the form of a home equity line of credit (HELOC) may come in handy. Many people also use these loans for temporary expenses such as paying for a new car, a wedding, taxes, tuition, or a vacation. They enjoy the reduced pressure of paying only a minimum monthly installment, while letting the equity in their home work for them to provide positive cash flow and collateral.

The helpful HELOC

The HELOC has many advantages. The loan application process is far less complicated than applying for a first mortgage, and closing fees are minimal. Once you're approved for this loan, a credit limit is established, and you can draw against it whenever you want. You pay interest only on the amount you borrow. In some cases, you can postpone principal payments for an entire decade, depending on the type of credit line you select. After the interest-only period expires, however, your loan is amortized in the normal fashion for the rest of the life of the loan.

You can even use an interest-only HELOC to free up funds for home improvements. If your kitchen needs an upgrade, for instance, and you can do it without dipping into your monthly household budget, you can add equity and real market value to your home. In exchange, you can borrow against your home as a reliable source of available credit for future projects or purchases.

HELOC as bridge loan

If you plan to sell your home soon, an interest-only option makes a lot of sense. It puts money in your pocket that would otherwise be spent servicing your second mortgage. Since you'll pay off the entire principal at closing anyway, an interest-only loan is a no-brainer to bridge the gap in the meantime.