Although many business advisors don't recommend it, some entrepreneurs look closer to home for financing by taking a second mortgage on their house.
Mortgages are, of course, mainstays of many banks. But according to G. Richard Bright, senior vice president of home equity lending for Countrywide Home Loans in Calabasas, California, many mortgage companies will also make these typically 15-year home equity loans.
Second mortgages are best for people who want to borrow all the money they need at one time and secure fixed, equal payments. A home equity line of credit, on the other hand, is a revolving credit agreement with a fixed credit line in which the borrower can write checks up to that limit, says Bright. Interest rates are higher, but this option offers more flexibility. While plenty of companies offer second mortgages, few offer the home equity line of credit.
The advantages of these two options are that the interest is tax-deductible and tends to be lower than an unsecured loan or credit card, says Bright. Conversely, you must recognize that these loans could put your home at risk.