Looking For A Second Mortgage Loan?
A second mortgage loan is a subsequent loan and subordinate to the earlier mortgage. In other words, a second mortgage loan is used as collateral pledged for the first loan.
Length of Second Mortgage Loans
Second mortgage loans have varying lengths with which they are eventually paid off. Some second mortgage loans may last for as long as 15 or 20 years. Other second mortgage loans only require one year for repayment.
When you’re thinking of taking on a second mortgage loan, you will need to know what term best suits you. Discuss the repayment terms of the second mortgage loan with your bank or lending company. For instance, you get a second mortgage loan worth $20,000 to make some home repairs. With this amount, you might want to take on a second mortgage loan that will allow you to repay the entire amount in one or two years. If you pay a second mortgage loan that has a shorter term, the monthly payments may be too high.
Payment Calculations for Second Mortgage Loans
Before taking on second mortgage loan, be sure that you understand a couple of things first. Know how much your monthly payments will be for that second mortgage loan. Moreover, it is also helpful if you also have an idea as to where those second mortgage loan payments will cover.
Some second mortgage loans require you to make monthly payments on both interest and principal. Other second mortgage loans only require you to pay the interest of the borrowed amount.
The former type of second mortgage loans will allow you to significantly shorten your payoff period since with each payment you make, you are also chipping away at the principal. With the interest-only second mortgage loan however you will be required to pay back the entire amount that you borrowed as soon as the term ends. This type of second mortgage loan is also called balloon payment loans.
Second Mortgage Loan Costs
Fees may be charged by some lending companies for the money you borrow on second mortgage loans. The fees, referred to as “points,” are usually a percentage of the second mortgage loan. One point on your second mortgage loan is equivalent to one percent of the amount you borrow.
So, if you were to get a second mortgage loan of $10,000 with an eight-point fee, then you would have to pay $800 in “points.” Second mortgage loan companies may charge you in varying number of points so if it might be helpful if you do a comparison first.
Second Mortgage Loan Rates
Second mortgage loans have different payments plans. Most second mortgage loans have a fixed rate payment included in their payment plans. If you have a fixed rate second mortgage loan, the interest rate will be set for the whole loan term. This means that your monthly payments for your second mortgage loan will not be affected by any outside changes.
Some companies also offer second mortgage loans with variable rate payments. These variable rate second mortgage loans periodically experience rate adjustments. A variable rate second mortgage loan might be cheaper than a fixed rate payment in the long run. But this is only provided if the interest rates of second mortgage loans go down. If interest rates rise, then your monthly payments for your second mortgage loan will rise as well.
By: Lorna Mclaren
What to Know About a Second Mortgage
Second mortgages and home loans are among the most popular ways for homeowners to get extra cash for important life events. Also known as home equity loans, second mortgages allow you to borrow money “against the equity in your home”. The concept sounds simple enough, but there are things that you should understand about second mortgages before you agree to take one out.
A second mortgage uses your home as collateral.
Ads for second mortgages don’t always make it clear that they are secured loans. That may sound good, but the security isn’t for you – it’s for the bank. When you take out a second mortgage, you are promising the lender that if you can’t make the payments; they can get their money back by selling your house. That is the single most important thing you need to understand about second mortgages. If you default on a second mortgage, you CAN lose your home.
There are good and bad reasons to take out a second mortgage.
Those same ads also often use tempting images to convince you that taking out a second mortgage for fun things is a good idea. Why wait for that cruise when you can put your house on the line to finance it? It’s best to use savings and earnings for fun things and luxuries. A second mortgage is a great way to fund things that will last and give you a return on your investment. Among the best reasons for a second mortgage are
paying for education and training
Education and training can make an enormous difference in your life or the lives of your children. Borrowing money to allow you to change your life for the better is a good investment.
making improvements or repairs to your home
Increasing the value of your home is another excellent reason for taking out a second mortgage on your property. This holds true whether you are making improvements and repairs in order to make your house more marketable, or simply to increase your own enjoyment of it. In either case, you’re using borrowed money to increase your own wealth, one of the best reasons for borrowing.
paying for once in a lifetime events
A wedding can set you back by tens of thousands of dollars. If you can find a second mortgage with payments that fit your monthly budget, taking out a loan against your home can allow you to pay for important lifetime events that you can’t pay for all at once. A better choice for this kind of purpose may be a home equity line of credit, though.
The amount that you can borrow is determined by the amount of equity you have.
The equity you have in your home is the difference between the amount that your home is worth and the amount that you still owe on your mortgage. Here’s a quick example to help you understand.
Suppose you bought a house for $200,000, and put down a down payment of $20,000. The day that your mortgage closes, your home equity is the same as your down payment – $200,000 (home value) – $180,000 (amount owed on mortgage) = $20,000 (equity). Now imagine that five years have passed, and you’ve made your payments faithfully. You’ve paid down $13,000 on your mortgage, and now owe $167,000 on it. Your home’s value has increased to $250,000. Your home equity is now $250,000 (home value) – $167,000 (amount owned on mortgage) = $83,000.
Depending on your credit and the housing market, you may find lenders who are willing to lend you up to 125% of your home equity, but it’s more common for them to lend 60-80% of home equity. Thus, with $83,000 in equity, you may be able to borrow from $49,800 to $103,750.
The interest rate that you’ll be offered is dependent on your credit rating.
As with any other loan, the interest rate on your second mortgage will depend on how good your credit rating is. The better your credit rating, the lower your interest rate will be. You can affect that interest rate by taking the time to clean up your credit before starting to look for a second mortgage.
Shopping around for second mortgage rates is always a good idea.
Don’t just take the first second mortgage that you’re offered, though. Every lender has different ways of factoring in credit ratings and other factors, so it’s definitely to your benefit to shop around and get several loan quotes before making a decision.
It can take several weeks to get a second mortgage approval, but there are ways you can speed up the process.
One of the best things you can do in the interests of speeding up the process of loan approval is to get your own home appraisal before applying for a second mortgage. It’s not foolproof, but many lenders will happily take your expert’s appraisal rather than pay for one of their own.
By: Brian Jenkins
Bad Credit Mortgage Lending
Many people experience bad credit in their lifetime. Bad credit can be the result of unemployment, having a medical condition, a serious injury, or becoming a victim of identity theft or fraud. If you have bad credit, you still are eligible for many mortgage products. Here are some tips on bad credit mortgage lending.
There are many mortgage products that you can apply for even if you have bad credit. Some of them include a first time mortgage, second mortgage, debt consolidation loans, and refinancing your existing mortgage. Bad credit won’t put you in the best situation for a mortgage but it will absolutely not stop you from receiving lending.
Bad credit usually makes an individual or couple a higher risk due to their past history of either defaulting on a payment, having trouble paying a loan, or being late in paying a loan. While you may pay a higher interest rate and go through a stricter approval process, you can still qualify for high quality lending products.
Most couples or individuals with bad credit will usually receive a higher interest rate. Higher interests rates vary on specific situations, but it can vary from 5% higher to 50% higher depending. If you have bad credit, you may need to put more money down, if you are buying a loan. Again the amount varies by situation and lender. Most lenders also require stricter policies with a bad credit recipient, so you might need to show proof of certain documents or put down a larger amount of collateral to cover any lending you might borrow against.
The good news is that there are plenty of mortgage and lending companies that understand that not all people have perfect credit records and are willing to work with even the highest risk individuals and couples. If you have bad credit, look into the many mortgage lenders that can help you out by offering mortgage products to you, no matter what your credit rating.
By: Connie Barker