Second Mortgages Basics
A second mortgage, also known as a home equity loan and/or home equity credit, is exactly what it sounds like: another mortgage on your house. Your second mortgage is secured by the home. The bank can also take your home if you fail to pay the loan. If you default on your home mortgage payments, the first mortgage will be paid by the sale of your property. The second mortgage money will not go to the property.
Because interest rates are low now and home values are increasing, second mortgages are very popular. Here are some facts about second mortgages.
Types Of Second Mortgages
Home equity loans and home equity credit lines are the two main types of second mortgages. A home equity loan is a loan that the lender provides you with a lump sum of money, and then you have to repay it over a specified time period. The interest rates are usually fixed. The home equity line is a credit card that allows you to spend money when you need it. Interest rates can be adjusted in most cases.
The Second Mortgage: What Are The Benefits?
There are no restrictions on how the second mortgage funds can be used. A second mortgage is often used to finance large expenditures, such as home repairs or improvements, or to pay off large debts. You should not use the second mortgage for anything frivolous like a vacation or buying new clothes.
Benefits Of Second Mortgage
A second mortgage has a major advantage: it can give you large amounts of money that you can spend however you like. Second mortgage interest rates are very low at the moment, though they may not be as low as your original mortgage rate. These loans' interest may also be tax-deductible. Please consult your tax advisor.
Advantages Of A Second Mortgage
A second mortgage has one major drawback. The loan is secured by your house, and you could lose it if you fail to repay the loan. You may also have to pay substantial fees for a second mortgage (typically, closing costs are between 3-6 percent of the total loan amount). Additionally, your interest rate might be lower if you have poor credit.
Borrowers Can Get As Much Money As They Like
There are many factors that will affect the amount you can borrow. These include your credit score, the equity in your home, and your loan-to-value ratio. This is the percentage of your property that is mortgaged. Lenders will not lend more than 75-85 percent of your combined loan-to-value ratios for the first and second mortgages.
Where Can I Get A Second Mortgage?
It doesn't matter if you get your second mortgage from the same lender as your first mortgage. You can apply for a second mortgage with any lender. It is important to compare different quotes, including total fees and interest rates. You can use our lender directory search to locate local lenders that can help with a second mortgage or our lender tool to identify a lender offering home equity lines.
