Interest only loans are also available for homeowners looking for a second home loan on their house. Homeowners may also wish to finance their second with a line of credit as well.  For instance, if you have $50,000 in credit card debt and equity in the house of $250,000 you may want to pay off the credit cards, and open a line of credit as well. 

You don’t need to use the line of credit right away or at all.  It may be handy for emergencies, and it may be a good idea to apply while your credit is still good.  There are endless options available for this type of loan.

Here is one option:  You pay off your $50,000 credit card debt, consolidating the payments into a lower monthly installment.  Some lenders will offer a number of set-points or “locks” where you can fix the interest rate.   If you feel interest rates are going to go up, you may want to lock in the $50K at a fixed interest rate right away.

The lender may offer a ten year period where you can draw on the additional $100K line of credit.  They will likely make this available as an adjustable interest rate until you lock it in.  When you lock in the interest rate, it will be fixed at the adjusted prime rate plus a percentage. 

So let’s say you have a medical emergency and need 25K right away.  The bank will give you checks for this purpose, and you can decide to lock the money in at that time or wait.  If you locked in the initial $50K, you would have four more locks available for the 10 year period. 

Usually, after the 10 year period, the remaining balance that you used will be locked into a traditional loan where interest and principal are paid for the remainder of the term as installments.        

This type of loan is just one of many options available.  Always check with your financial planner before you decide on what option is right for you.