A cash-out refi will give most people seeking to tap equity their best deal, experts say. At the same time, they're not for everybody. For example, a second mortgage is the best route for someone who already has a mortgage at a very low interest rate. Doug Perry of Countrywide Home Loans says second mortgages can be initiated more cheaply than a first mortgage. Many lenders offer them for free, recovering costs through slightly higher interest rates.
Second mortgages come in two varieties.
Equity line of credit. The lender gives you the right to draw against the equity in the house by writing checks up to the predetermined limit. A typical deal would be structured to give the borrower a draw period of 10 years, with repayment over 25 years. Equity lines of credit typically are priced in relation to banks' prime rates. A borrower with good credit and plenty of home equity may get the money at the prime rate.