Second Mortgage: A Loan Lovelier the Second Time Around?
Most average Americans are able to buy their own homes through a
mortgage. And, while paying off the first mortgage, other needs for
money arise for necessities such educational plans for the children,
cash for managing the house, money for capitalizing on a small
business or money to pay off personal debts. A second mortgage can
even be used to pay off the first mortgage.
A second mortgage is usually based on the equity - your interest, as
an owner, on your home based on the mortgage payments you have paid
and the increased value of your home property.
Apart from it being a second to the first mortgage, a second
mortgage is different from a first mortgage in terms of interest
rates. A second mortgage usually has a higher interest and is
usually paid in a shorter time. Aside from this, a single large
payment called balloon payment is also made at the end of the paying
period
Usually, refinancing is an alternative for second mortgage
especially when interest rates are low because higher rates apply on
second mortgages than on the first one. On the other hand, there are
other features of a second mortgage which makes it more appealing
than refinancing. This includes the looser contract guidelines which
reduces the amount of time and effort to get that second mortgage.
Apart from this, second mortgage may have lower transaction costs
that can override the higher interest and which may also, in the
long run, cost less than getting a refinancing.
Traditionally, a second mortgage has established repayment schedules
and is offered as a fixed loan. But, at present, there are three
options from which you can choose from. These are: the traditional
second mortgage, a home equity loan and home equity line of credit.
We will talk about the features of each briefly below
a. Second mortgage. This loan is ideal for situations where you need
the money in lump form especially for home improvement. Second
mortgage can be found as either fixed-rate or adjustable from 5 to
20 years but usually 15 years. Seventy five to eighty percent of the
appraised value of the home is the loan limit for both merged loans.
In a second mortgage, interest rates are more than that of the first
mortgage especially if this is a fixed second mortgage. Adjustable
second mortgage, on the other hand, have lower interests but have
higher margins. Loans usually closed in two to three weeks and the
amount to be paid during closing is usually two to three percent of
the over all loan amount. Requirements needed when applying for a
second mortgage include home appraisal and credit check.
b. Home Equity Loan. A home equity loan is like the traditional
second mortgage but is different in 2 ways. First, unlike second
mortgage, this has lower interest rates and second, lenders can
waive off closing costs. Most types of this loan being offered are
adjustable in the market.
A home equity loan is usually used for home improvements and
renovations just like a second mortgage and it can also be used to
finance a business.
c. Home Equity Line of Credit. This type of loan is ideal for cases
where there is a need for funds occasionally such as for debt
consolidation or for payments of college plans or tuition fees. Just
like in a second mortgage, a credit check and a home appraisal is
required before you can be given this type of loan.
The loan amount is usually seventy five to eighty percent of the
home's appraised value and the interest is changeable. Some lenders
waive off closing costs but others could total up to $1,000 plus
points.
ABOUT THE AUTHOR
Bob Schwartz, is a Certified Residential
Specialist, CA licensed real estate broker with
www.Brokerforyou.com. Bob
has over 27 years of residential real estate experience, authored a
number of published articles and served as an expert witness for
San Diego lawyers. You can contact
Bob via e-mail at bob@brokerforyou.com or visit his highly popular
San Diego real estate website at:
http://www.brokerforyou.com
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