Converting a construction loan
By Bankrate.com
Q.
What's the best strategy for converting
a construction loan?
You should take out a mortgage
to pay off the construction loan. Construction loans aren't meant
to be a method of long-term financing. A first mortgage is a better
choice than a home equity loan because you can borrow for longer
periods, generally at a lower interest
rate.
A typical
home equity loan is a second mortgage.
It carries a higher interest rate than
a first mortgage because there is more
risk to the lender. That's because the
first mortgage has to be satisfied before
any sale proceeds go toward satisfying
the second mortgage. With no other lender
having priority in the event of foreclosure,
you've given the home equity lender all
the benefits of being the primary lender.
Ask yourself, "What's in it for
me?" It comes down to the loan terms. You should get better terms
on a first mortgage than you would on a home equity loan.
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