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Second Mortgage Loans
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In simple terms a 2nd mortgage is popular method of borrowing a lump sum against the value of your home. Below are the basics of this type of home equity loan.
It is worth mentioning in this regard that a home equity loan or second mortgage loans is an additional loan secured by your home. Theoretically speaking the second mortgage is considered subordinate to your primary mortgage. In other word if you default on either loan the 1st mortgage will be paid off by the sale of your home. On the other hand any remaining proceeds from the sale will be applied to the second mortgage. If experts are to be believed second mortgages typically come with higher interest rates because there is more risk for the lender. As a matter of fact you may be required to pay closing costs and points in order to qualify for the loan. Point to be noted in this regard is that the second mortgages are paid in a lump sum and generally come with fixed interest rates. There is no hiding the fact that this fixed interest rate is an advantage over a home equity line of credit that comes with a variable interest rate. More often than not a second mortgage loans may be a good idea for homeowners needing a specific sum of money. It is worthwhile remembering that the added security of a fixed interest rate makes this option more attractive than a home equity line of credit in many cases. According to experts to learn more about your home equity options and how to avoid costly mistakes, register for a free mortgage guidebook. On the other hand if you are in the market for a second mortgage loans you can save yourself a lot of money by doing your homework first and researching mortgage lenders. Always remember that it does not matter what you plan to do with the money; shopping for the best deal on your home equity loan could save you thousands of dollars. In an ideal scenario here is what you need to know before you start shopping for a 2nd mortgage. First and foremost the term length you choose affects how much you will pay. The general thumb rule in this regard is that the shorter your loan term the higher your monthly payments will be; however, you will pay less in finance charges with a short term length. In case if you need the smallest monthly payment for your home equity loan choose a loan with the longest-term length. There is no denying that interest rates are an important aspect to consider. More often than not second mortgages typically come with fixed interest rates; however, choosing an adjustable interest rate could get you a lower interest rate, at least initially. As a matter of fact your credit score will determine the interest rate you qualify for. Thats why cleaning up your credit before you apply for a second mortgage can get you a better interest rate. According to experts when you take out a second mortgage loans you will have to pay many of the same fees you paid when taking out your first mortgage. In addition you may have to pay application fees, lender fees, title search, appraisal fees, legal fees, and closing costs to take out your second mortgage. Because of the simple reason that these fees vary greatly from one lender to the next you can save yourself some money by comparing all aspects of loan offers, not just the interest rates. In simple terms a second mortgage is a loan that is subordinate to another loan taken against the same property. It is worth mentioning in this regard that they are called subordinate in the sense that if the loan is defaulted, the first loan gets paid off first before the second one. Always remember that in such cases of default, any remaining money will be used to pay off the second mortgage after clearing the first. Because of this simple reason the second mortgages are therefore riskier for the lender. Thats why, second mortgage loans have a higher interest rate. Moreover they also carry closing costs and points that make them more expensive. Believe it or not there are different types of second mortgages. Theoretically speaking in the most common type, the borrower takes loan for only the actual equity. For example, it is worthwhile remembering that if a property is valued for $75,000 and if the owner has availed a first mortgage for $50,000, it is easy to secure a second mortgage for $25,000. On the other side of the coin a line-of-credit second mortgage is another type in which the borrower applies for a loan but does not avail himself of it immediately. Fact remained that he can draw the money whenever he needs it. More often than not a second mortgage is taken at the same time the borrower secures
the first mortgage. To illustrate this point consider a example if the borrower wants to obtain a loan that demands a forty percent down payment and he has only thirty percent, he can apply for a mortgage for the required ten percent. Furthermore it is worth pointing that a second mortgage loans can also be applied for a value that is more than that of the borrowers property. But fact remained that these types of loans are riskier for the financiers and demand greater credit. In addition, the interest may not be fully tax deductible. If experts are to be believed a second-mortgage loan is a good option if you need money urgently. On the other side of the coin refinancing the first loan could also be a better option, but it depends on your case. But before that it is of utmost significance that you beware of the transaction costs when you decide between a second mortgage and a refinancing option. Nine out of ten times, consumers does not analyze the transaction cost as a result budget increases. Other Articles |
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