The Second Mortgage Home Equity Loan
A second mortgage can also be referred to as a home equity loan. It is in essence a secured loan that is second, or subordinate, to the first mortgage against the property. The key issue for anyone getting this type of loan is the amount of equity they have in their home. This will ultimately determine the amount of money that can be secured for the home owners use.
Equity is the amount of money that is paid down on the home, or it can be the value of the home minus any loans owed on the home. The main reason for taking out a second mortgage is to take equity from your home and turn it into cash in pocket. What this means is that if you have enough equity in your home you can borrow money using your home as collateral. There are three basic types of loans to choose from: the traditional second mortgage, a home equity loan, or a home equity line of credit.
A second mortgage should not be confused with a mortgage refinance or re-mortgage. When you refinance your first mortgage you are replacing your old loan with a new loan, usually at a better interest rate. A second mortgage, or home equity loan, is another loan in addition to the primary loan, which will result in two monthly payments. It is important to distinguish the two to make sure that two payments will not seriously affect your monthly budget.
The interest paid on a second mortgage, up to the first $100,000 borrowed, is tax deductible provided that the loan is on your primary residence. It should be noted that interest rates on home equity loans are generally higher than a first mortgage, usually in the 2-4% higher range. But the interest rate on a this type of secured loan will be lower then on an unsecured loan, such as a car loan, and much, much lower then you will find on a credit card.
The common reasons to get a home equity loan are to pay off high interest credit cards or other higher interest rate debts, refurbishing the home, urgent family matters such as education, medical, etc. This is called debt consolidation and refinancing and is a good way to tap the asset value of your home to meet your investment and budget needs, and helps you avoid incurring high interest unsecured debt like credit cards. If you have extensive credit card debt, and are not making progress in paying it off on a monthly schedule, a second mortgage may be a good move.
There are a couple of things that anyone getting a home equity second mortgage should be aware of. A second mortgage puts a second charge on your home, meaning that the second mortgage provider can take a share of any proceeds if your home has to be sold. What is worse, if you pay the first mortgage but fail to pay the second, that mortgage provider can seize your home, even if the sum involved is relatively small.
Getting a second mortgage home equity loan can be a good way to use the equity in your home to do any number of things. Like all financial decisions using a second home loan should be carefully considered in all aspects. If it makes sense and fits within the monthly budget then it is something to be strongly considered.
By: Andrew Bicknell
The Second Mortgage Home Equity Loan
A second mortgage can also be referred to as a home equity loan. It is in essence a secured loan that is second, or subordinate, to the first mortgage against the property. The key issue for anyone getting this type of loan is the amount of equity they have in their home. This will ultimately determine the amount of money that can be secured for the home owners use.
Equity is the amount of money that is paid down on the home, or it can be the value of the home minus any loans owed on the home. The main reason for taking out a second mortgage is to take equity from your home and turn it into cash in pocket. What this means is that if you have enough equity in your home you can borrow money using your home as collateral. There are three basic types of loans to choose from: the traditional second mortgage, a home equity loan, or a home equity line of credit.
A second mortgage should not be confused with a mortgage refinance or re-mortgage. When you refinance your first mortgage you are replacing your old loan with a new loan, usually at a better interest rate. A second mortgage, or home equity loan, is another loan in addition to the primary loan, which will result in two monthly payments. It is important to distinguish the two to make sure that two payments will not seriously affect your monthly budget.
The interest paid on a second mortgage, up to the first $100,000 borrowed, is tax deductible provided that the loan is on your primary residence. It should be noted that interest rates on home equity loans are generally higher than a first mortgage, usually in the 2-4% higher range. But the interest rate on a this type of secured loan will be lower then on an unsecured loan, such as a car loan, and much, much lower then you will find on a credit card.
The common reasons to get a home equity loan are to pay off high interest credit cards or other higher interest rate debts, refurbishing the home, urgent family matters such as education, medical, etc. This is called debt consolidation and refinancing and is a good way to tap the asset value of your home to meet your investment and budget needs, and helps you avoid incurring high interest unsecured debt like credit cards. If you have extensive credit card debt, and are not making progress in paying it off on a monthly schedule, a second mortgage may be a good move.
There are a couple of things that anyone getting a home equity second mortgage should be aware of. A second mortgage puts a second charge on your home, meaning that the second mortgage provider can take a share of any proceeds if your home has to be sold. What is worse, if you pay the first mortgage but fail to pay the second, that mortgage provider can seize your home, even if the sum involved is relatively small.
Getting a second mortgage home equity loan can be a good way to use the equity in your home to do any number of things. Like all financial decisions using a second home loan should be carefully considered in all aspects. If it makes sense and fits within the monthly budget then it is something to be strongly considered.
By: Andrew Bicknell
Options to Refinance a Second Mortgage
If you have both a first and second mortgage, or a first mortgage and a HELOC, you have the option to refinance the second mortgage, the first mortgage, or combine both mortgages into a single loan.
Refinance a Second Mortgage Only
The simplest option for refinancing a second mortgage with a high adjustable or fixed rate is to contact your current lender about refinancing to a lower fixed rate loan. If you’re payments have been on-time and you have good credit, your lender may offer you a streamlined loan that requires less paperwork and time and includes fewer costs. If your lender doesn’t agree to a streamlined loan, you should be able to find other lenders who are willing to offer you good terms and a good rate.
Refinance a First and Second Mortgage Together
If you’d prefer the convenience of a single payment and combining both loans into one would save you significant money, you can refinance both loans together. In order to qualify for the best rates, some lenders require you to wait a year after receiving the second mortgage before refinancing it. Your home may also accrue additional equity during this time, which will help ensure that your new loan and settlement costs don’t exceed the value of your home.
You can refinance a first mortgage and either a home equity loan or HELOC into a single new first mortgage. Before you do, compare your potential savings to your costs. If your first and second both have low fixed interest rates and there isn’t a large gap between those rates, refinancing may cost you more than you’d save.
You should also consider how much time you have left on your first loan. If you’re less than ten years away from paying off the first loan, refinancing could actually cost you more because most of your payments are going toward the principal balance rather than interest. Unless you can afford to complete paying both loans in the same time frame as your original loan, this may not be a good option.
Refinance a First Mortgage Only
If you have both first and second mortgages, it is possible to refinance just the first, but it isn’t easy. Your first mortgage is the mortgage listed first with the registrar. When you refinance a first mortgage, any other home loans move up in line, so your second automatically becomes your first. In order to refinance your first as a new first, your second lender must agree to continue subordinating their claim. Some lenders refuse. If your lender refuses, your only options are refinancing both mortgages into one new loan or refinancing both mortgages separately into two new loans.
Before refinancing any mortgage, carefully consider your options. Use refinancing calculators to compare costs and savings from all three options and then make the most financially beneficial decision that your lenders will permit.
For more article on Refinancing Second Mortgage, visit http://www.bills.com/refinance-second-mortgage/
By: justin narin