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For example, your loan specifies that you will pay prime rate + 5%. If prime rate is currently 6.5%, interest rate on your loan will be 11.5%. The interest rates will be evaluated periodically, and if prime rate has changed, your interest rate will change along with it. Of course your monthly payment will also change accordingly.
A line of credit second mortgage is just that: an amount of money that you can borrow at a future date as needed. This amount is available to you all at once or in several small disbursements spread over many years.
For example, you apply for and get approved for a $50,000 line of credit (secured by a second mortgage on your home). You can borrow entire $50,000 at one time.
Alternatively, you can wait a few months and borrow $20,000 for a new car. A few months later you can borrow $6,000 to add a room to your house. Later still, you can borrow another $3,000 to pay off a credit card bill.
So far you will have borrowed $29,000, meaning that you have $21,000 left on your line of credit that you can borrow later if you need to.
Second mortgages allow homeowners to tap equity in their homes to purchase expensive items, pay of debts, or most anything else.
Home equity loans are usually used to fund a present need while lines of credit are often established for use at some time in future.
It is very important that you use a second mortgage wisely because if you get into financial trouble you can potentially lose your home. But if used properly, a second mortgage can help you enjoy a better lifestyle, now and in future
Ajay Pats is a professional manager.He manages real estate broking site "Real estate broker" (http://realestatebroker.nexuswebs.net/realestatebroker/index.html),community for home based business entrepreneurs "Venturecon/Home business opportunities"(http://groups.msn.com/venturecon) and inspirational ezine "Discover secrets of happy and prosperous life"(http://www.topica.com/lists/venturemall).