When To Go For Second Mortgage
A second mortgage is more commonly referred to as a home-equity loan
. A home-equity loan or
second mortgage allows the homeowner to take out a loan using the value of the home that is not currently under a first mortgage. This value is calculated by subtracting the balance of the first mortgage from the total market value of the home. For instance, if you house is appraised for $300,000 and you owe $200,000 to a mortgage company, your equity in the home is $100,000. That would be the maximum you could borrow on a second mortgage. Second mortgages are often used to make home repairs or renovations, pay education expenses for you or your child, consolidating high cost credit card debt or other debts, or paying for unexpected expenses. However, it is not advisable to be used for non-real estate investments or purchases of consumer goods like televisions, cars, boats, or other big-ticket items. A second mortgage loan, also called a home equity loan or home equity line of credit, is a mortgage loan used for converting home equity into cash.
Getting approved for a second mortgage is often easier and less expensive if you have good credit. Your lender will verify your income, employment, credit and determine the value of your home as part of approving a second mortgage loan.
2nd mortgage loans are secured loans and are generally easier to obtain than other types of loans. You get a second mortgage first by owning a house. And if you don't own a house, you may not be able to get a second mortgage or if you have equity in your house, i.e. your house is worth more than you own on your first mortgage. Whatever may be the reason for taking out a second mortgage, first make sure there is a way of recouping the money. Also note that there are additional closing costs such as, appraisal fees, application costs etc. If you arent capable of paying these fees, you may not be able to take out that second mortgage on your property.
A good start is to shop for a second mortgage with an institution youre already working with, say your existing bank or lender. Since you have already been paying regularly for your first mortgage, you may be considered for a second mortgage with better mortgage rates and fees. But remember that with
second mortgage loans, the lender is, as a result, at higher risk, so a second mortgage can have a higher rate of interest than you would see with a first mortgage. Use care when taking out a second mortgage or using HELOC funds. Second mortgage and home equity lenders can foreclose if you fail to make payments, and property values can decrease, which reduces home equity and can lead to owing more on mortgage loans than your home is worth. Finally, you may have to pay hefty second mortgage fees. There are a lot of hurdles to get through and services to pay for. Depending on how much you need and how long youll need it, a second mortgage may not work simply because of the fees. So, if you are considering applying for a second mortgage, please think it through very carefully and consider all your options before making a final decision on taking out a second mortgage.
by: Ask Bill
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