Benefits Of A Second Mortgage
Many people have heard the term second mortgage used in reference to a loan on a home.
What does the term “second mortgage” really mean? As far as real estate is concerned, a single piece of property can have multiple loans, or mortgages against it.
The loan that is first registered with the county or city is known as the first mortgage. The loan that is registered second is known as the second mortgage.
This has many benefits over a normal bank loan.
There can be as many mortgages on a property as there are lenders willing to provide funds.
If a loan happens to go into default, the loans are repaid in the order they were registered.
So, the first mortgage is paid first, the second mortgage is paid second, and so on. Because of this, subsequent mortgages are more of a risk for the lender.
In exchange for assuming the risk of lending a second mortgage, lenders often charge higher interest rates.
In many cases, the second mortgage has a shorter term than that of the first mortgage. Also present with many second mortgages are fixed amortization schedules and balloon payments.
Homeowners have many reasons for taking out a second mortgage. Some of the most common reasons are for home improvement, increasing cash, paying off other debts, or investing in a business.
In some cases, the second mortgage is used as a down payment for the first mortgage when the home is purchased.
When you are choosing a lender for a second mortgage, you will use many of the same considerations that came into play for your first mortgage.
The interest rate, repayment terms, and fees associated with the second mortgage are some of the primary factors that might cause you to choose one lender over another.
The repayment terms are another factor that you should use to determine a lender for a second mortgage.
Some second mortgage loans can be repaid in as much as 15 or 20 years. However, some loans must be repaid within a year.
Generally, the shorter the repayment period on the second mortgage, the higher the monthly payments will be. You should choose a loan with repayment schedule that falls in line with your ability to repay.
To obtain the loan, you will usually have to pay a fee that is a percentage of the loan. Your lender may refer to this percentage as “points”.
One point is equivalent to one percent of the amount that you borrow. Therefore, if you borrow $10,000 with five points as the fee, then you would pay $500 (5%) in points.
The number of points changed will vary by lender. This is where shopping around will pay off for you.
In some states, there is a limit to the amount of points a lender can charge for a second mortgage.
Check with a banking commissioner or state consumer protection office to find out if there is such a limit in your state.
Make certain that you get the amount of the fee in writing from the lender before taking the loan.
By: Gerald Mason
Federal Government Loan Modification Can Help Lower Your Mortgage Payments – Qualify Today
government has sanctioned a hefty amount of $75 billion dollars, to modify the loans of house owners who are struggling to pay their mortgage every month. Are you eligible for such a loan modification? First, you are required to stay in the house for which you are paying mortgage. Secondly, only houses with outstanding principal balance payment of upto $729,750 are eligible. Thirdly, only loans that were taken on 1 Jan, 2009 or before, meet the fulfillment criteria. Fourthly, proof of residence, income statements, credit card reports, proof other assets and a signed affidavit stating you have financial problems, also need to be submitted along with the application form. If, you think that you meet the requirements to become eligible for loan modification, then a lot of benefits await you.
Your loan will be remodified, keeping in mind your income as well as other expenses. As long as the payment is assured, your mortgage could be a minimal amount which could be as low as 38% of your monthly gross income. Your interest rates could be as low as 2%, and if required, the government would pitch in to bring down your mortgage amount to 31% of your monthly gross income. The repayment term period could extend upto 40 years as well and upto $ 1000 can get subtracted from your principal amount every year, as long as the payments are on time. So, if you fulfill the guidelines laid down, your mortgage nightmares will be a thing of the past.
By: Lindsy Emery
Second Mortgages: What you Need to Know
At times in life it may be necessary to come up with a sum of cash for unexpected expenses or even expenses that you might not be able to afford without a influx of cash. In these cases a second mortgage can come in quite handy. Before taking out a second mortgage; however, you should know how they work and the advantages and disadvantages of second mortgages.
Basically a second mortgage occurs when you take out another mortgage on top of the existing mortgage on your home. This type of loan is secured with the property for collateral. Of course, the first mortgage takes precedence in the event that you default on the loan. Any funds that are left would then be applied to the second mortgage.
Many people commonly use second mortgages for such expenses as home improvements, the purchase of a second or vacation home and to consolidate other debts with a lower interest rate. Of course, you may also be able to use the proceeds of your second mortgage for other options but you should always keep in mind that you are putting your home at risk for the purchase and be sure you can justify the risk for that purpose.
One of the major disadvantages of a second mortgage is that the interest rate will usually be higher than your first mortgage. Lenders insist on higher interest rates because they understand they won’t be the first in line in the event that you default on the loan and they need to protect their assets, so they do this with higher interest rates. Of course, the rates are typically lower than what you could obtain with any other type of loan and much lower than credit cards.
You should also be aware that you’ll typically be responsible for some fairly significant closing costs on second mortgages. If you can’t pay those fees, you may not be able to work out a second mortgage on your property.
Due to the amount of risk involved you need to be absolutely sure you have no other option before taking out such a loan. After all, you are risking the loss of your home, so you should be sure you’re willing to take the risk as well as be relatively sure you can cover the additional loan payments.
If you do decide a second mortgage is the right option for you, be sure to shop around for rates before taking the first one offered to you. You may be able to get better terms or a lower interest rate by shopping around.
Always look over the terms to be sure of what you’re agreeing to pay. One of the most typical arrangements with many second mortgage lenders is to tie what is known as voluntary insurance in with your mortgage. Depending on the level of your current insurance policy, you may not need this additional coverage and cost. In addition, always make sure you know how much you’re paying for closing costs, such as application fees, points to get a lower interest rate and appraisal fees.
By: Joseph Kenny