Overview
Trim down your monthly payments! Accumulate the money and be back in command of your debts." That's the pitch you hear for second mortgages that allow you to borrow up to 125% of the value of your home. And as more people see their credit card debts creep up, they're wondering if this type of loan could be the answer to their problems. So let's take a look at the 125% second mortgage.
The 125% second mortgage gives you an offer to borrow more than what your home is worth. A second mortgage is a predetermined rate, simple interest loan, where the lender secures the compensation by placing a mortgage lien in second position on the property title, using your home as security. Adding a second mortgage loan on the title of your property does not change the terms of your existing first mortgage. Your new second mortgage rate will remain fixed for the full term of the loan, which can be available in 5-year increments, with a choice of 5 to 25 years.
Benefits of 125% Second Mortgage
What makes loans like 125% second mortgage look so eye-catching?
By taking a second mortgage loan you can have a lot of advantages like: there is no lender fees or appraisal; mobile notary comes to you; you can pay off your high interest loans and credit cards; you can finance your home improvement plans; you can reduce your total monthly payments. Getting a 125% second mortgage is one of the best ways to consolidate your existing debts; you are charged a lower interest than your credit card account. This helps you in paying all the credit card bills, consumer loans and other bills by combining all the bills into one single monthly installment. You even get access to ready cash that you can use according to your wish.
The other decoy for borrowers is that the second mortgage comes with a lesser monthly payments that classically go on for a period of 15 to 30 years. So borrowers pay back only a little bit of the principal amount each month. It's not abnormal for someone who has credit card balances to reduce their monthly payment by one third if they transfer to a second mortgage.
The most important difference between second mortgages and home equity loans is the maximum loan cost that is permissible, which can be as high as 125% of the value of your house. Remember that if you borrow more than your home is worth, there may be a loan balance due if you sell your house, and the tax-deductible interest is limited to as little as 100% of value, or $100,000.
The
whole amount of your second mortgage is given off directly
to you by the lender at the time of loan closing, unless there
is an contract that states that some amount has to be paid
to a third party directly. For instance, it may be mandatory
for some borrowers to compensate some debts in order to meet
the debt to income ratio.
Types of Second Mortgage
There are in fact more than a few forms of second mortgages.
A line-of-credit second mortgage is that in which the proprietor does not take the money t right away, but as a substitute, applies for a line of credit tenable against the home, which can be used as and when desirable.
In certain instances, a second mortgage is taken out along with the first one to facilitate in qualifying for a new buy. Suppose a borrower requires 30 % down payment to qualify for the first mortgage and the borrower has only has 20 % of the cash at present, in such a case he opts for a second mortgage for the extra 10 %.
At times you can also opt for a second mortgage in excess of your home's value. With a 125 % loan value, your total debt can be 125 % of the value of your house. Such types of loans are difficult to obtain and require high amount of credit. A major drawback of this type of loan is that your interest will not be entirely tax-deductible. Mortgage interest is acceptable as a tax deduction barely up to the amount that has been secured by some landed property.
The second mortgage is frequently an outstanding alternative for procuring the looked-for cash, although in some situations if you consider refinancing a first mortgage it may pose as a better option. If the first mortgage was taken at the time when interest rates were high, refinancing the first mortgage will not only yield the required cash, it will also result in a much lower interest rate.
When you are deciding between whether to refinance or take a second mortgage take into consideration the transaction costs. By and large it depends on your existing equity, credit rating, and various other factors.
At the end of the day, key financial planning can allow you to enjoy the good life once again even if you've had money problems in the past. When lenders compete to get your business, you end up with better rates and more efficient service.
The money obtained from the second mortgage can be used for any purpose, such as consolidating your debts, or home improvement. There are a few ways to save money when consolidating your debts you can do so by reducing your interest rates and monthly payments, converting compound interest into simple interest, and by converting your non-tax deductible interest on monthly debt payments into a new tax deduction.
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