Understanding Second Mortgages and Home Equity Loans
There are many benefits to buying a house rather than renting. Many people would argue that renting a property essentially creates ‘dead money’, in that the money for all intents and purposes vanishes into thin air.
Contrary to this, those who choose to buy their own home – if all goes well – will see a gradual increase in their property’s equity over a number of years, as a result of them paying their mortgage off month by month. In some cases, the equity can rise rather rapidly if a number of factors combine forces.
If a homeowner is shrewd with their money and pays off more than they are obliged too, then not only does the mortgage decrease, but the amount they are paying on interest should decrease too, assuming interest rates don’t increase. Additionally, if an area experiences an unexpected boom, perhaps due to unforeseen development work in the neighbourhood, then this can see local house prices go through the roof, so to speak.
When both the above factors occur in tandem, then the equity in a home can rise considerably in a relatively short period of time, meaning homeowners can often be sitting on mini goldmines.
Many people choose to unlock the equity in their home rather than opting to profit immediately through selling it on. The most convenient way of doing this is by going down the home remortgage route. The funds raised from this can then be reinvested back into the home, with a new conservatory, patio, garage or kitchen serving to increase the value of the home even more.
Of course, any funds acquired through taking out a second mortgage don’t necessarily have to be invested back in the home – they can be used to buy a new car, consolidate existing loans or even go on holiday. Second mortgages may have a fixed or variable rate of interest and will normally constitute borrowing a lump sum amount. As with a first mortgage, it will need to be paid back over a pre-established period of time.
One alternative to taking out a second mortgage would be to opt for a home equity loan (HEL) instead. Similar to a second mortgage, the funds are secured against the value of the property. However, a home equity loan is perhaps more similar to a credit card in that an approved line of credit is given up to a certain amount of money. Furthermore, it may even come with a credit card so that money can be spent against the credit.
Which option is best really depends on the circumstances. For a remodel or a renovation, then a second mortgage may be the best choice, as it’s easier to have an idea of exactly how much money will be needed. In situations where the actual amount of money required isn’t clear, then a home equity loan may be the answer.
By: Adam Singleton
Save Money With Mortgage Cycling
Imagine that you have $40,000 in cash to finally remodel your old kitchen into that beautiful chef style kitchen you have always wanted. One with granite counter tops, and beautiful stainless steel appliances. There are actually methods that enables you to do this. One of them is called Mortgage Cycling and more than likely, you will have built enough equity with this plan to remodel more than just your kitchen. Perhaps the entire house needs a facelift or the the kids, and you, would love to add a swimming pool.
The possibilities with that extra money are endless and the best part is, not only does this make your home more attractive and comfortable, it also increases your homes overall value. Imagine that you have those extra thousand dollars to put down on a second home or an investment property. With a mortgage cycling plan you will be able to own multiple properties in a shorter period of time. You can combine the power of Mortgage Cycling with real estate investing and you could easily provide yourself with a very successful living.
We all know that investing in real estates have been great investments over the last century.
There is also the option of using the equity to provide a solid education for your children by sending them to the best schools. If you have ever wanted to send your children to exclusive, private school or college but could not afford it, then this plan gives you that opportunity. You can also be able to boost your retirement plan by tens of thousands of dollars and you could either retire years earlier or have that much more money to retire on.
If you have the chance to pay off your mortgage in a few short years would you take that chance? At the same time you could free up a huge chunk of cash every single month. The money that used to be an expense every month can then be part of your income. Some people make an extra $800 per month in their pocket, for others it is an extra $1,800 per month.
A biweekly mortgage can be good but it can only cut 8-10 years from your mortgage. Now you do not even have to hassle with a biweekly mortgage. With mortgage cycling you will pay off your mortgage in 10 years or less. Can anyone turn down an alternative like that?
By: Keith George
When Should You Refinance A Second Mortgage?
A second mortgage allowed you to get the house that you wanted or to have extra cash for some project – but that was a few years ago. You have built up some equity in the house and are now wondering if it would be a good time to refinance your second mortgage. Here are some things you need to know in order to help you make that decision intelligently.
Refinancing your second mortgage can be a good deal if the interest rates are better than what you already have. Otherwise, not only would you be increasing your payments, but you would also be adding the cost of refinancing to it, too.
If the current interest rates are lower than what you are paying now, by at least a full percent, then it could be a good move to refinance. Or, if you have built up a sizable equity since you took out a second mortgage, then now could be a good time.
Refinancing a second mortgage means that there are two ways for you to go. One way is to get a second mortgage for all of the equity built up in your house – a home equity loan. A second way, which could be less costly, is a home equity line of credit (HELOC).
A third option may also be available – refinance everything. This would be especially appealing if you have an adjustable rate mortgage for your first mortgage. Interest rates are not exactly promising at the moment and you may want to look for something that is predictable for many years to come. Of course, you would only want to consider this option if you are planning on living in your present home for a few more years to come. The cost of refinancing everything would involve taking a few years to recoup the costs of doing just that.
If you choose to get a HELOC arrangement for a new second mortgage, then you have the option of having cash available – but it is also cash that you do not have to pay interest on until you use it. There is an assigned period of time that you have to use the designated amount (the equity you have) – usually this is about eight to ten years – depending on the time frame of the second mortgage. The last roughly two-thirds of the mortgage is the time that you repay the amount you used. All interest is only based on the amount that you use.
In order to save even more money when you get a new second mortgage, be sure to keep it reasonably short. Remember that the longer time frame you have on a mortgage, the more you are paying in interest. Talk to the lender to see what your options are for the amount of money you want.
As with any mortgage, be sure to learn all of the details involved. This includes understanding what other companies may offer if you were to deal with them. Money can be saved by comparing and also by negotiating for a better deal. They will usually work with people who want to negotiate, and they do expect it.
By: Joseph Kenny