Second Mortgages: What You Need To Know
November 5, 2011 Mortgage Information
Most Americans have the ability to buy a home through a home loan mortgage. While they pay the first mortgage off, there are other financial needs that arise – education, children, house improvements, small business finances, and other situations that can be personal.
A second mortgage may come in handy for paying off your first one. The second will usually be based on your equity. That means your interest as the owner of your home and based on your mortgage payments already paid that have increased the value of your property.
Besides it being your second to first mortgage, the second mortgage will be structured differently from the first when it comes to terms and interest rates. You second mortgage will most often carry a higher interest rate and pain over a shorter period of time.
In addition there is a large single payment known as a ‘balloon’ payment that will be paid at the pay period’s end. Most of the time refinancing is available for an alternative to taking out a second mortgage. This holds especially true whenever interest rates are at a low, because the higher interest rates apply to your second mortgages, higher than the first one anyway.
There are some other unique features for the second mortgage that can make it much more appealing than going through with refinancing. These features are things like contract guidelines that are less strict, which can lower the time and effort of obtaining your second mortgage.
Aside from this a second mortgage might have lower transaction costs which can override your higher interest rates and cost less than refinancing over the long haul.
A traditional second mortgage will contain established repayment schedules and given as a typical fixed loan. At present there exist three options you can choose from, and these are the ‘traditional second mortgage’, a ‘home equity line of credit’, and a ‘home equity loan’.
1. Second Mortgage – This is an ideal loan for times when you need a lump sum of money, mainly for home improvement. Second mortgages are seen as being either fixed-rate types or adjustable types ranging from 5 – 20 years, but basically on 15 years. 70% to 80% of your appraised home value is your loan limit for these merged loans.
2. Home Equity Loan – Home equity loans are similar to traditional second mortgages but have two distinct differences. Unlike the second mortgage they carry a lower interest rate and lenders can waive the closing costs. Most of these loans are offered as adjustable on the market.
3. Home Equity Lines Of Credit – This kind of a loan is great for circumstances where a need for periodic funds exists, like for debt consolidation, tuition fees, or college payments.
Like a second mortgage you have to have a credit check and get your home appraised before you can receive it.