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Pros and Cons of an Adjustable Rate 2nd Loan

Adjustable rate second mortgage loans have received a lot of negative press in recent years for several reasons. First of all the default rate on 2nd mortgages is very high. Second, adjustable rate mortgages carry an interest rate that can vary and borrowers don't like the vulnerability that comes with an ARM.

Home equity lines of credit are considered an adjustable rate second mortgage. People like home equity credit lines because you only pay interest when you use the money, rather than paying immediately like you do with a traditional lump-sum loan. Adjustable rate 2nd loans offer interest only payments which mean that the borrowers are not paying down the principal when they make their minimum payment.

We recommend home equity lines of credit to homeowners that are doing some home improvement projects and plan on spending the money over a long period of time like 6 months or a year. Credit lines and 2nd loans are also good for people who are not sure about how much money they need.


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