Second Mortgage – Benefits and Considerations

Learn About a Second Mortgage

2010-05-29T11:01:00.001-07:00

Second mortgages are among the top kinds of loans that are offered by real estate lending companies. Because of its proliferation, many people are becoming more and more interested of such type of loan. For those who are planning to get a second mortgage, here are some things you have to know about first.

What is a second mortgage ?

A second mortgage is like a home equity loan. It does not refer to your mortgage loan or refinancing loan. When you apply for a second mortgage, you will be using the equity of your home as collateral while the original mortgage that you made is still being paid.

As such, a second mortgage allows you to make use of the value of your home even if you still haven't fully paid for the expense of financing your house. Instead of getting other types of loans for you to spend for home refurnishing and repairs, you can make use of second mortgages.

How do you pay off a second mortgage ?

You have to remember that when you get a second mortgage, the new amount that you will borrow will not add up to the original amount of the first mortgage. Instead, the amount of your first mortgage will not increase no matter how much you will get for the second mortgage. This is because your second mortgage is treated as a different loan from your first one. It will be treated as a separate accountability with its own billing cycle.

As a result, a second mortgage means that you will have to pay for another mortgage bill, aside from your original debt. So, you will have to deal with two mortgage bills monthly- one for the original mortgage loan, and another for your home equity loan.

What should you be wary about when choosing a second mortgage package ?

When choosing which among the many second mortgage loan packages you should avail of, the primary consideration is the interest rate.

You have to keep in mind that the interest rates for second mortgages are usually higher than that of an original mortgage loan. This is due to the fact that lenders consider the second mortgage to be riskier that the first one.

However, you have to remember that the interest rates of second mortgages are considered far more reasonable and affordable than the interest rates of other loans. Furthermore, the offered interest rates are often negotiable or adjustable, depending on your credit score which indicates your capability to settle your debts.

Where can you use your second mortgage ?

The prime reason why many people want to avail of second mortgages is the fact that it is a flexible loan. Once your home is approved as collateral, you can get the loan and use it for a variety of purposes.

Aside from using the second mortgage loan for the expenses of repairing or refurnishing your house, you can also get a second mortgage to pay for your child's education or to buy a new car or home equipment.

Visit Loan Answers to find more useful Articles, Guides & Loan Tips. You can find Mortgage Loans Articles, or search our main site for Questions & Answers about Second Mortgage.

Article Source: http://EzineArticles.com/?expert=Robert_Diarioti

Debt Consolidation: Second Mortgage Loan Advantages and Disadvantages

2010-05-18T12:08:00.001-07:00

You may never be as popular as today's second mortgage, but it could be your best friend. In today's finance-friendly world, it seems like everyone is getting a second mortgage or home equity line of credit -- and as interest rates climb, their popularity grows. Even so, you still need to ask yourself: what are the advantages and disadvantages? Time to do some homework - the kind of homework that could save you thousands of dollars.

"It's not about loans; it's about changing people's lives for the better," says Rory Cambra, president of the North San Diego County Chapter of the California Association of Mortgage Bankers and a mortgage banker with Pacific Capital Mortgage.
What is a second mortgage? Quite simply, it's another mortgage on your home, and like the first, it's secured against your property or the equity you've built up over the years. They can be fixed-rate or adjustable-rate.

So, what's the difference between a second mortgage and a home equity line of credit?

"A second mortgage is a lump sum. A home equity line of credit is basically an open checkbook," Cambra says. Lump sum loans are best when you need all the money at once.. A line of credit is best when your cash needs are stretched out over time, like a series of home improvements or college tuition payments.
Equity is the difference between your home's value and the balance on your mortgage loan. If your home is worth $500,000 and you owe $400,000 on the mortgage, then you have $100,000 of equity.

"Americans have hundreds of billions of dollars in equity, but most don't understand that the equity in their home is not safe, liquid or growing," Cambra says. "Everything from market conditions to disasters can significantly affect your home equity. It could literally just go away." Before you decide to jump in to the second mortgage waters, assess your family's financial needs and goals; explore the variety of second mortgage products, and understand how each type best serves your financial picture. Then consider the following:

Second Mortgage Advantages (They increase the more homework you do)

Make your equity work for you. It's a good thing to separate your equity from your mortgage and put it in a safe, liquid and growing environment. "You're not doing it to conserve your equity; you're doing it to create wealth. It can even be used to create your retirement nest egg," Cambra says.
A cash cushion. Cambra tells his customers that the best first use for your second mortgage is creating a cash cushion, suggesting a minimum of $5,000 be put away for emergencies. Why? So you won't turn to credit cards the next time an unforeseen financial need pops up.

Pay off debt.

A non-brainer: pay off all your high-interest debts, including credit cards.
Serious liquidity. You can create serious liquidity, like socking away one year's salary in the bank. (We can dream, can't we?) Pay for your child's education. That sigh of relief you just uttered is reason enough.

Create wealth.

Consider this: If you use the proceeds from your second mortgage properly, you can - on paper -- pay off your house in full. The key words being, "on paper." Obviously, you don't want to miss all the financial and tax benefits that go with your mortgage, but according to Cambra, creating wealth on a balance sheet that is equal to the amount you owe is an accountant's dream.

2nd Mortgage Disadvantages (They decrease as you do more homework)

Dealing with fear and stress. Everyone has trepidations when it comes to property finances. Fear causes some homeowners back away from a second mortgage. But if you educate yourself, and are prudent with the proceeds, you really haven't increased your risk.

Not protecting your home.

Be realistic about estimating your future income. If for some reason you cannot pay back the second loan, it could be disastrous. Consuming the proceeds of a second mortgage unwisely. Some homeowners use a second mortgage to take a lavish trip, buy that fantastic new car they've always wanted or spend it on frivolities. Then they end up going right back to their credit cards. "It's a fact: we are human, and we are driven by the pleasures of the world - and those are usually depreciating assets," Cambra says.

Second Mortgage Costs, Fees & Charges.

2nd mortgages have more defaults, so it's common for lenders to charge more fees up front. Prepare for and budget the costs. You might also have appraisal fees, points, applications costs and other closing costs. Ask your lender - beforehand - for a printed list of fees.

David is a free-lance writer and media consultant based in Southern California. He also serves as spokesperson for high-profile businesses, political campaigns and community issues.

Please visit these helpful resource websites: To get a no cost rate quote for a 2nd mortgage please check out Second Mortgage Quotes. If you need more loan advice about refinancing with Bad Credit, take a look at Equity Loan Refinancing. For the latest debt consolidation solutions, please visit the Debt Consolidation Loan Center.

Article Source: http://EzineArticles.com/?expert=David_W._Johnson

Is A Second Mortgage Going To Help You?

2010-05-18T12:07:00.000-07:00

Nowadays, almost everyone buys his or her home using a mortgage. Sometimes, though, life can be unexpected, and sometimes it can be just plain expensive! At times like these, it's frustrating to know that your house is worth so much more than you paid for it, and yet you can't just take that equity down to the local store to buy groceries - or can you?

Well, you probably wouldn't want to touch the equity of your home just for the groceries, but if you need to improve the house, start a business, pay off some expensive debts, or maybe put your kids through college, then a lump sum would be very handy. That's where a second mortgage may prove to be a good option.

Basically, when you buy a home and take out a mortgage, that's known as a first mortgage. That means that if you get into financial trouble, and the lender forecloses, they have "first" grab at the sale funds. If you then take out a second mortgage against the house, usually against the equity you've built up over time, then that lender will get "second" grab at the sale funds.

Because the lender who gives you the second mortgage is second in line, the risk to them is much higher. If the property is sold under foreclosure, and doesn't fetch the expected price, then it's the second mortgage lender who's going to miss out - well, at least until they start chasing you personally, anyway. But all that means they're opening themselves up to a bigger risk of losing money, or having a lot of hassle getting their money back.

So second mortgages are almost inevitably more expensive that first mortgages - both in terms of interest rates, and the fees charged. Quite often, too, a second mortgage has to be paid off in a shorter time frame. Your first mortgage might be for 30 years, but the second mortgage might only be for 10 years, as an example.

Apart from that, second mortgages come in almost as many different variations and have as many options as first mortgages. You can get fixed rates, adjustable rates, interest only, balloon payments - and the list goes on. So before you start trying to source a second mortgage, it's a good idea to have a very clear idea of what exactly you're looking for, and what you can afford to pay. If you're not in a position to make high payments every month, then you might be able to source a second mortgage with lower payments and a balloon payment after 5 years. Hopefully by then (particularly if you're doing home improvements) your house will be worth more, and you may be able to refinance both mortgages into just one, lower rate first mortgage.

There are a couple of different ways to set up a second mortgage, although technically they're not all called second mortgages! Basically, what we're talking about here is ways to access the equity you've gained in your home. So there's a standard second mortgage, which means you have two loans against your home. Remember, though, that even the combined loans probably won't be able to go above eighty percent of the value of the home.

You can also organise a home equity loan. This is mostly the same as a second mortgage, but is generally cheaper, both in interest rates and charges. Generally these are offered with adjustable rates, and quite often are taken out with the same lender as the first mortgage.

A variation of this is the home equity line of credit. This is where the loan funds are set up like a big bank account, and you can take out amounts periodically when you need them - for example, when the college fees are due.

All types of second mortgage will generally require an application, a credit check and a home appraisal. The criteria are often stricter than for a standard home loan, simply because the risk to the lender is higher. Even so, it's unlikely you'll be able to borrow more than eighty percent of the appraised value of the home.

In the end, only you can decide whether a second mortgage is a good idea for you. It can be enticing to suddenly have a windfall of a large lump of money, particularly when things are tight, but in the end it's no different to any time of credit - at some point, you are going to have to pay it back. So think very hard about your financial situation and your ability to make repayments when considering a second mortgage.

There's lots of great home loan information at Home Loan Zone Central [http://www.homeloanzonecentral.com]

Article Source: http://EzineArticles.com/?expert=Felicity_Walker

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All About Second Mortgages

2010-05-18T12:05:00.001-07:00

Second mortgages are an increasingly popular way for homeowners to raise finance by using the equity in their property. Second mortgages are also known as "home equity loans" and "secured loans."

Essentially, second mortgages are loans secured against properties on which there are already first mortgages from different lenders. As an alternative to second mortgages, applicants could receive a further advance on their first mortgages instead.

Second mortgages are used extensively throughout the UK by homeowners who wish to release equity from their homes in order to fund activities such as home improvements, debt consolidation, purchasing a new car, or funding a holiday.

Lenders are willing to approve second mortgages for almost any purpose so long as the combined loan-to-value ratio of the first and second mortgages does not exceed their allowable upper limit.

Basically, home owners who have equity in their properties can secure second mortgages against them in addition to the first mortgages. The funds from the second mortgages will be deposited into the borrowers' bank accounts which can then be used for any purpose.

It is important to note that second mortgages are usually secured against the borrowers' homes. Taking out second mortgages could therefore lead to home repossession if the borrowers do not keep up with their repayments.

Secured loans normally have a shorter term than first mortgages and also attract higher interest rates due to the perceived increased risk by lenders. Therefore the monthly repayments on second mortgages can seem excessive when compared to first mortgages.

If the repayments on second mortgages seem too high, borrowers should instead consider releasing equity be increasing the balance of their first mortgages. Because the interest rate will probably be lower, and the term of the first mortgage longer, the increase in the monthly repayment should be less than for the monthly repayments on second mortgages of the same amount.

If applicants would prefer to not put their homes at risk they may wish to consider applying for unsecured loans instead. Unsecured loans, or personal loans, are not secured against the equity in the borrowers' homes and therefore do not put their properties at risk.

It should be noted that unsecured loans usually come with higher interest rates than second mortgages.

If borrowers are in any doubt with whether or not to use second mortgages to raise funds, they should consult with an independent mortgage adviser.

Visit UK Mortgage Source for up-to-date information on Second Mortgages

Article Source: http://EzineArticles.com/?expert=Michael_Sterios

What is an ARM? What You Need to Know About Adjustable-Rate Mortgages

2010-05-17T12:57:00.001-07:00

What is an ARM? When is it smart to get an ARM? When should you avoid an ARM? When you are looking into refinancing or financing your home one of the options you will have is the ARM which stands for Adjustable Rate Mortgage.

Adjustable Rate Mortgages is a loan program that will provide you with a lower interest rate than you would get with a fixed-rate loan. However, this lower interest rate comes at the expense of time. You will only receive this rate for a short period of time. After your fixed rate period is up your monthly payment will actually adjust up and down as interest rates adjusts every year thereafter.

The ARM program was created specifically for times when rates are high. A buyer could opt for the ARM and hope for rates to come down by the time their fixed period is up. Rate terms can vary. Your ARM can be a 3/1 which means your rate is fixed for three years, a 5/1 which means your rate stays fixed for five years. A 7/1 and a 10/1 are other common term periods. After your loan reaches the cutoff year your rate will begin to adjust every year thereafter.

When should you consider an ARM?

1. An ARM can allow you to qualify for a larger loan due to the discounted rate and lower monthly payment. Your mortgage lender can use an ARM to help you plan and coincide with your changing financial needs.

2. If you plan to sell your house within three to four years from the time you obtain your loan an ARM can be useful to you. During the short time you own your home you will be able to take advantage of a discounted interest rate and lower monthly payments. Before your rate adjusts you will be selling your home.

When should you avoid an ARM?

1. When rates are at an all time low there is absolutely no reason to get an ARM. You want to keep the good rate your getting as long as possible. If rates are low there is only one place for them to go...up. You do not want to get to the end of your fixed-rate period and suddenly your payment adjusts through the roof.

2. ARM's are not ideal if you are buying a home you plan to stay in for a very long time. A fixed rate will allow for consistency in your payments long term. If many years go by and rates are lower you can always refinance your loan to take advantage of the lower rates. If rates are decent and you have an ARM on a home you plan to keep you are taking a risk of that loan adjusting beyond your means.

Adjustable Rate Mortgages and their terms can vary. Be sure your lender explains all terms of your contract and do not be afraid to ask questions. A good lender is there to be your guide. He or she should be willing to take your calls and answer your questions promptly and honestly.

Always consider all loan programs and options with a professional before making your choice.

Robert W. Horner is a Residential Mortgage Banker with years of experience. To visit his personal website go to http://www.robertwhorner.com. To view mortgage rates go to http://www.mortgageratescharlottenc.com.

Article Source: http://EzineArticles.com/?expert=Robert_Horner

Second Mortgage - Valuable Tips To Help You Make The Right Decision

2010-05-17T12:56:00.001-07:00

When considering the facts within this article, it may be quite surprising to find some of the issues you thought were settled are actually still being openly discussed as to which type of loans are best.

A second mortgage is a mortgage whose terms are subordinate to the first mortgage. Loans with a second mortgage are usually done when the homeowner needs money in order to pay for an existing loan.

What Type Of Loan Is Best - A Second Mortgage, Home Equity Loan Or Refinance?

This is a question every homebuyer is faced with when shopping for mortgages. Take this scenario: A homeowner is facing a credit card debt of $50,000. Should he take a $190,000 second mortgage to refinance an existing mortgage with a balance of $140,000? Or should he borrow the money from a $50,000 home equity loan?

In most cases, borrowers who took a mortgage when rates were lower will find a second mortgage better than a home equity loan. But to be certain, some factors need to be considered.

You need to compare the interest rate and points of the first mortgage with that of a second mortgage. Second, find out if there are any PMIs (Private Mortgage Insurance) involved with the second mortgage. Find out what loan term is most favorable for you on your second mortgage. Your income tax bracket and amount of cash you need from your second mortgage are also necessary factors.

Consider the case above. If the first mortgage at $14,000 was acquired two years ago, the interest rate would be 7 percent for 30 years without PMI. Let's say your income bracket is 39.6% (the highest) and you are capable of earning 5% more on your investments. Your house is now worth $213,000.

Hopefully the information presented so far has been applicable. You might also want to consider the following examples before you select a loan.

A second mortgage for $190,000 with settlement costs will require PMI. If you decide to get a home equity loan instead, you will get 30 years loan term at 8.25% and one point. For $50,000, your second mortgage will include additional costs for 15 years at 11.5% and one point. The result will be that over the course of five years, your second mortgage will have saved you $11,361 more than what refinancing will.

Take A Second Mortgage Or Get A New One And Pay PMI?

Getting a second mortgage has more advantages when it comes to taxes than a separate loan. But usually, this depends on many other factors.

Getting a second mortgage is better than getting a separate loan when the rate difference between the second mortgage and the first mortgage is small. If the loan term is short, then getting a second mortgage probably makes more sense than getting a separate loan. Balance is paid off faster with shorter term loans. Since second mortgages have considerably higher rates, the shorter the loan term is, the better it is to get a second mortgage loan.

Other factors that affect the advantage of second mortgages over separate mortgages are tax brackets, closing costs, and expected appreciation rate.

For example, you have a tax bracket of 15% and a 30-year first mortgage for $160,000 and a second mortgage for $20,000 at 11.75%, zero points, and to be paid off in 15 years. A separate mortgage would be for $180,000 with down payment at 10%. Interest rate for this separate mortgage would be at 8.25%, zero points, and 0.52% PMI.

When you calculate this, you can see that over the five years, a second mortgage will have saved you 16.97% more than a separate mortgage would.

With the right facts and information you will know you have made the right financial decision. The time spent educating yourself can be well worth your time and effort. Be sure to read more articles before you make your final choice of loan that is best for you.

Dean Shainin is a consultant specializing in home loans, strategies for loan financing, home equity loans, and consolidation loan information. To see a list of recommended loan companies, tools, resources, free quotes and articles, visit this site: http://www.homemortgageloantips.com

Article Source: http://EzineArticles.com/?expert=Dean_Shainin

The Facts About Getting A Bad Credit Second Mortgage!

2010-05-15T07:18:00.002-07:00

A bad credit second mortgage is a specialist area and it pays to know the facts before you begin looking for advice.

What is a Bad Credit Second Mortgage?

A bad credit second mortgage, also known as an adverse second mortgage, is a loan that is taken out on a property you already have a mortgage on. The reason for undertaking a second mortgage is usually to release some of the equity, in order to help pay other debts, or to raise finance for a particular project. An bad credit second mortgage is the name given to a second mortgage product that is specifically designed for people with an adverse credit history.

Is an adverse credit second mortgage my only choice?

Your choice of finance will depend on your current circumstances and what you need to achieve. If you have a property with an existing mortgage and you only need to raise a certain amount of capital, then you should consider a second mortgage. You can specify the amount you would like the mortgage to be for; it doesn't have to be for the full value of your property. If you have applied for other loans or mortgages and been rejected because of your credit history, then you should investigate an adverse credit second mortgage to see if it meets your needs.

How will I know if I have an adverse credit history?

The first sign of an adverse credit history is when your application for a loan, credit card, store card or mortgage is rejected. This is usually because the lender has checked your credit rating and decided you are a bad risk for their standard products. If this is the case, you should check your credit report to see if it is accurate and so that you know exactly what position you are in. If you run several credit and store cards and have defaulted on any loan or other payments, then your credit history and rating could be affected. If this is the case, you will need to use specialist products such as a bad credit second mortgage to help resolve your financial problems.

Will it increase my debt?

A bad credit second mortgage should help you to manage your debt, provided you use the loan money to reduce your existing debts and you meet the repayment requirements on your other debts, such as your existing mortgage and your new second mortgage. This loan requires a proportion of your home as security, so it is important that you make the payments.

How can I find out more about adverse credit second mortgages?

Taking out an adverse credit second mortgage is something you should do when you have serious debt problems. For this reason, it is important that you talk to an independent professional adviser, such as a mortgage broker. With expertise in the market, they will be able to assess your current circumstances and recommend a product that will help you to manage your current finances whilst keeping monthly payments to a minimum. They will impress upon you the need to be sensible about your debts and serious about clearing them, but will also be able to help you plan properly so that you can use the capital raised by the bad credit second mortgage to improve your chances of eliminating your adverse history.

Elizabeth Grant writes exclusively for The Mortgage Broker specialist websites. To read more of Elizabeth's articles on Adverse Credit Mortgages please visit the Adverse Mortgage Centre.

Article Source: http://EzineArticles.com/?expert=Elizabeth_Grant

Should I Take Out a HELOC or a Closed-end Second Mortgage to Consolidate My Debt?

2010-05-15T07:18:00.000-07:00

When shopping for a loan to consolidate debt (or for other reasons as well), there are a myriad of options available to a prospective borrower. If you are currently a homeowner with some equity in your property, tapping into that equity and paying a lower interest rate than the interest rate on your credit cards (which can often be well over 20%) is often a very good idea.

Options

Your basic options are whether to 1) refinance your current mortgage into one new larger mortgage or a combined first and second "piggyback" mortgage 2) keep your existing mortgage and take out a new closed-end fixed term second mortgage or 3) keep your existing first mortgage and add a new Home Equity Line Of Credit or "HELOC" as a second mortgage.

If you are paying a low, fixed interest rate on your first mortgage, you may be better off leaving that alone and either taking out a new second mortgage or refinancing an existing second mortgage. There are many factors to consider in deciding between a closed-end second mortgage or a HELOC. Refinancing or originating a second mortgage is almost always cheaper than refinancing your first mortgage, as your settlement costs will be much, much lower. You won't have to deal with taxes or insurance escrows, title insurance policies, many lenders will allow cheaper "drive by appraisals" and you are less likely to incur hefty origination fees or points.

Basic Definitions and Differences Between a Traditional Second Mortgage and a HELOC

Traditional Second Mortgage

A traditional second mortgage stands in second position on the title of your home (behind your first mortgage) and will almost always carry a higher interest rate. The terms of a second mortgage can vary greatly (from five to thirty years), but will almost always need to be an equal or shorter term than that of your first mortgage. These mortgages can be combined with first mortgages (oftentimes for the purpose of avoiding PMI) or "stand alone". They are generally fixed interest rate loans, and may or may not have a balloon payment feature, where the entire balance of the loan is due before the loan is fully amortized. Second mortgages are also referred to as "closed-end" because you cannot borrow more than the maximum original amount, as opposed to HELOCs, which you can draw cash out of the equity in your home. When the loan is closed, you receive all of the cash at once, as opposed to HELOCs, which have a minimum required draw amount, and you can pay down and charge up, much like you would a credit card.

HELOC's

HELOCs are similar to traditional second mortgages only in the sense that they typically hold second position on your home's title. If you don't have a current mortgage on your home, your HELOC will be listed in first position on your home's title and you will probably be able to negotiate a better rate. HELOCs differ in most other ways to traditional second mortgages. They are, for the most part, variable interest rate loans. Like your credit card, their interest rate will fluctuate along with the Prime Rate. The Prime Rate is set by the Federal Reserve and listed daily in the Wall Street Journal. Your HELOC rate will be the index (e.g., Prime) + the margin. Your margin will increase if you have a lower credit score, cannot fully document your income, or leave little if any equity available in your property. The interest rate on HELOCs are calculated daily as opposed to a traditional second mortgage, where the interest rate is calculated monthly. The Prime Rate is currently 8.25% and if you see a HELOC with a lower interest rate, make sure that it is not an introductory or "teaser" rate set to adjust in one to three months.

Benefits of Second Mortgages

Traditional second mortgages are generally better for purchases or refinancing to eliminate Private Mortgage Insurance. Because their interest rates are usually fixed, there is a lot more predictability to your monthly housing budget. They are also better for large expenses, such as tuition, etc., but because you receive all your cash at closing, they lack the flexibility of HELOCs. Expect interest rates to run anywhere from 7% (excellent credit) to 14% (average or below credit).

Benefits of a HELOC

HELOCs can be great tools to utilize in debt consolidation if you are not consolidating all your debt at once or anticipate needing cash advances available for emergency expenses, home improvements, etc. There are a few HELOCs available with fixed interest rates that are a wise option to pursue, but are harder to come across than variable rate loans. HELOCs will usually allow you to use all of the equity remaining in your home (100% CLTV), but they may require a minimum credit score of 660 or 680. The 125% loans you may see advertised are usually fixed-rate closed-end second mortgages available to borrowers with great credit and plenty of disposable income.

Debt Consolidation

One common aspect of second mortgages and HELOCs in relation to debt consolidation is that they are both secured loans. Unlike credit cards, which are unsecured, mortgages (HELOCs included) place a lien on your property and must be paid off when your property is sold or refinanced. And although it is not too common, you can lose your home to foreclosure if you default on your promise to repay these loans. Failing to pay credit cards off can trigger pesky collection phone calls and severely injure your credit rating, but credit card companies cannot lay claim to your home or possessions. If you are careful with your finances though, debt consolidation through either a traditional closed-end second mortgage or a HELOC will almost always save you money in the long run.

Recommended Lenders Online For HELOC's or Second Mortgage Loans - We maintain a list of low rate mortgage lenders and update the list frequently. Try applying with one of our recommended lenders first.

Bad Credit? Learn 3 Rules for Success When Getting a Bad Credit Mortgage Loan.

Article Source: http://EzineArticles.com/?expert=C.L._Haehl

Learn About a Second Mortgage

2010-05-15T07:17:00.000-07:00

Second Mortgage Loan

2010-05-15T07:10:00.000-07:00

The second mortgage loan is a fixed rate subordinate loan of the first mortgage. The first mortgage must be paid off first before the Second Mortgage. The lenders usually lend up to seventy five percent to ninety five percent of the home equity. The home equity is the difference between current value and amount owe.

Most of the time, the homeowners use the second mortgage loan to pay for debt consolidation, home improvement, college education, or other expenses. And, homeowners pay both the mortgage at the same time. Since the second mortgage is higher risk than first mortgage, the lenders take extra measure to analyze the risk. Understandably, the second mortgage has higher interest rate than the first mortgage. Even though the homeowner pays higher interest rate, the interest rate is still lower than most credit cards.

The interest rates vary on each mortgage lender. The lowest interest rate does not necessarily mean the best deal. They are cost involve in any mortgage. And, the costs are different for each mortgage lender. Always ask for the Annual Percentage Rate (APR) which tells the true cost of borrowing. The mortgage lenders must disclose the APR by law.

Mortgage Lenders calculate second mortgage payment same as any regular mortgage monthly payment. Actually, the homeowners are able to pay monthly, bi-weekly, and extra payment like any other mortgage. The interest rate and payment period remains the same on the life of the loan. A newer type of second mortgage, which is called Home Equity Line of Credit (HELOC), allows more flexibility. The homeowner can even pay interest only on earlier periods. Then, the homeowner pays the regular payment on later periods. Some mortgage lenders allow lump sum payment at the maturity to extinguish the debt. This is called balloon payment. A default of second mortgage payment risks the title of the home, because the title of the home serves as the collateral of the second mortgage.

The life of second mortgage can be as short as five years. Some second mortgage goes as long as fifteen years. And, some second mortgage goes as far as thirty years. Naturally, it takes longer to pay off bigger second mortgage. And, the homeowner opts for a longer maturity date.

The mortgage lenders offer a powerful tool called second mortgage. In a difficult debt crisis, the second mortgage can consolidate all debts with a lower interest rate than most credit cards. In emergency, the second mortgage can also pay home improvements, home renovations, college education, or other expenses. However, a misuse of second mortgage leads to repossess of the home by mortgage lenders. It is advisable to know how much you can afford to pay before you take second mortgage. Mortgage Lenders also offer different interest rate. Lowest interest rate may not be the best offer. It is important to know the Annual Percentage Rate (APR) which tells the true cost of borrowing. Legally, the mortgage lender will disclose the APR to the homeowner.

Dennis Estrada is a webmaster of mortgage calculators website which calculate the monthly payment, bi-weekly payment, affordability, refinance, annual percentage rate, discount points, and more.

Article Source: http://EzineArticles.com/?expert=Dennis_Estrada

Second Mortgage - Valuable Tips To Help You Make The Right Decision

2010-05-15T07:03:00.001-07:00

Second Mortgage: How it works

2010-05-15T07:02:00.001-07:00

New York, NY August 6, 2006

Second mortgage is a secured loan that is subordinate to first loan against the same property. More specifically speaking it is the 'second loan' in sequence.

In real estate, a property can have multiple loans against it. The loan, which is registered with county or city registry, first is called the first mortgage. The loan registered second is called the second mortgage. A property can have a third or even fourth mortgage, but those are not common.

If mortgage loan goes into default, the first mortgage gets paid off before the second mortgage gets any money. Thus, second mortgages are riskier for the lender, who generally charges a higher interest rate. Rates and other charges might be greatly differentiated. That is why refinancing second mortgage requires more research.

Generally speaking, you may get second mortgage in two ways: First, you may own a home with equity. Second, you may get it while you are buying your home.

Second Mortgage as Home Equity Loan

The maximum amount of money that can be borrowed as second mortgage is determined by various factors, including credit history, income, and the appraised value of the home etc. It is common to be able to borrow up to 100% of the appraised value of the home, less any liens, although there are lenders that will go above 100% when doing over-equity loans.

Second Mortgage and First Mortgage Together

In some instances you may want to get second mortgage while buying your home. This is also called 80/20, 85/15 loan or 100% financing. It gives you ability to buy a home with almost no-money down. If you have a strong credit profile but have limited funds to commit to a down payment, 80/20 mortgages might be right for you. Lenders typically require a down payment of at least, 3 to 20 percent of the purchase price. If the mortgage loan amount is for more than 80 percent of the purchase price, private mortgage insurance (or PMI) is usually required.

You can avoid paying PMI by getting a second mortgage (piggyback loan) to back up your first mortgage. The first mortgage is provided for 80 percent of the cost of the mortgage and the 'piggyback' second mortgage is for the remaining 20 percent. The 80 percent first mortgage can be a fixed-rate (15-years or 30-years), adjustable-rate (usually 5/1, 7/1 or 10/1 fixed period ARM) or interest-only loan.

The 20 percent second mortgage can be a home equity line of credit that changes with the prime rate. Combined, the two loans allow you to purchase 100% of your home with no money down.

Second Mortgage Rates

For the reasons explained in above paragraph, second mortgage rates are higher then first mortgage rates. If you have a fixed rate second mortgage loan, the interest rate is set for the life of the loan. Many companies offer also variable rate second mortgages, also known as adjustable rate mortgages or ARMs. These provide for periodic interest-rate adjustments. If you have adjustable rate this allows the lender to adjust or change the interest rate. These interest changes should have upper and lower limits, as well as 'caps'. Be sure you understand your rights and obligations before you make your decision.

Factors to Consider before getting a Second Mortgage

1. The length of your second mortgage - when is repayment of the loan required?

2. Look at payment calculations -- how much will your monthly payments cost and what will that cover?

3. Look at all of the costs associated with getting a second mortgage.

4. Check what kind and amounts of additional fees required for getting a second mortgage. (Percentage, or points, or flat fees).

5. What is the interest rate?

Demir Caner
http://www.cane2.com Consumer Action Network

Article Source: http://EzineArticles.com/?expert=Demir_Caner

Second Mortgage – Benefits and Considerations

2010-05-15T07:00:00.001-07:00

Opting for a second mortgage is a decision which warrants a great deal of consideration. Before entering into a second mortgage, homeowners should carefully weigh the advantages and disadvantages of taking on a second mortgage and should also carefully review the different options available. A second mortgage is often enticing because these closed-end loans can be used for any purpose and may even be tax deductible but caution should be exercised because defaulting on these loans can put the home under which the second mortgage was secured in jeopardy.

The Benefits of a Second Mortgage

We have already stressed the importance of carefully weighing the available options in deciding whether or not to take on a second mortgage. In this section we will outline the benefits of a second mortgage. Although a second mortgage may increase the amount the homeowner pays in the long run, there are other worthwhile benefits to this type of mortgage. Some of these benefits include:

· Debt consolidation

· Tax advantages

· Home improvement possibilities

· Favorable interest rates

Debt consolidation is just one of the many advantages to a second mortgage. A second mortgage is typically secured based on the equity in the home but it can often be used for any purpose. This gives homeowners the opportunity to consolidate several debts including high interest credit card debt, under the umbrella of a second mortgage. Debt consolidation can greatly increase monthly savings by allowing the homeowner to repay high interest debt at the lower interest rate associated with the second mortgage.

There are also tax advantages to securing a second mortgage. As we mentioned credit card debt and other debts may be consolidated under a second mortgage. This is beneficial because tax laws may enable the homeowner to deduct the interest on their second mortgage.

The opportunity to make improvements to the home also exists with a second mortgage. As previously mentioned, a second mortgage can be used for a variety of purposes. Many homeowners take out a home equity line of credit which enables them to cash out on the equity of their home for purposes such as home improvement.

Finally, favorable interest rates are another reason for homeowners to opt for a second mortgage. In making this decision the homeowner should calculate the cost of taking out the second mortgage and compare this cost to the long terms savings potential. If the long term savings potential exceeds the cost of the second mortgage, it is a worthwhile investment.

Types of Second Mortgages

In making the decision to take out a second mortgage there are two main options which homeowners should consider. The most popular types of second mortgage include a home equity line of credit or a closed-end second mortgage. In this section we will explain these two options.

A home equity line of credit is essentially a revolving line of credit which enables the homeowner to take advantage of the equity in his home. The maximum amount for this credit line is usually based on a percentage of the appraisal value, usually 75%-85%, of the home minus the balance remaining on the original mortgage. Home equity loans are ideal for homeowners who wish to have a revolving credit line at their disposal and who are secure in using their home as collateral in securing this loan.

The significant difference between a closed-end second mortgage and a home equity line of credit is the closed-end mortgage offers a fixed loan amount to be repaid over a fixed amount of time while the homeowners can withdraw additional funds from the home equity line of credit whenever there is existing equity in the home. The closed-end second mortgage is ideal for homeowners with a one time specific need for funds.

Considerations before Taking on a Second Mortgage

We have discussed the benefits of a second mortgage and the types of mortgages available but homeowners should also evaluate the risks of taking out a second mortgage. Some of these risks include:

· Losing the home if the second mortgage is not repaid

· The costs of taking out a second mortgage

· Prepayment penalties

Perhaps one of the greatest risks of a second mortgage is the threat of losing the home if the mortgage is not repaid in a timely fashion. It is important to remember the collateral for a second mortgage is often the home itself. Becoming default on the second mortgage can result in loss of the home.

There are certain expenses associated with taking out a second mortgage. These costs may include application fee, loan origination fees, appraisal fee, survey costs, home inspection fees, title fees, homeowner's insurance and mortgage insurance. These fees could be equal to 3%-10% of the outstanding principal on the first mortgage. Before investing in a second mortgage, the homeowner should ensure the overall cost savings of the second mortgage will exceed the fees associated with taking out the second mortgage.

Finally, prepayment penalties should be thoroughly examined before taking out a second mortgage. This involves charging the homeowner for repaying the second mortgage ahead of schedule. Homeowners who intend to repay the second mortgage should ensure the lender will not charge prepayment penalties or should evaluate whether or not the penalties will be worthwhile.

Mary is an acclaimed free-lance writer who created many useful mortgage related articles You can read more mortgage related loan articles at Nationwide Second Mortgage & Refinancing. To get more second mortgage advice & home equity finance tips, please visit 2nd Mortgage & Home Equity Loan Specialists.

Additional Sources: [http://www.in.gov/dfi/education/pdfs/2ndmtgs.pdf]

Article Source: http://EzineArticles.com/?expert=Mary_Stasiewicz