Understanding A Second Mortgage

A second mortgage is a loan that you take against the equity that you have already built into your hom'he proceeds from the second mortgage can generally be used for whatever purpose the borrower has in min'It can be used to pay off a car loan or credit card'he proceeds can be used for home improvement or to take a vacatio'he money can even be put in a savings account for a rainy day fund.

Historically the total amount of debt from the first and second mortgage combined could not be more than 80% of the total market value of the hom'owever'ow interest rates and a competitive marketplace have created a lending environment where some lenders are approving second mortgages that, when combined with first mortgage balance, is totaling as high as 125% of the home value.

However, financial advisors will tell you that carrying that much debt on your home is never a good ide' never recommend borrowing more than 100% of the value of your home and I rarely recommend a second mortgage with a loan to value of greater than 90%.

Because a second mortgage is a property lien that is placed behind the first mortgage, this means that in the event of a default, after the property is sold the first mortgage gets paid first, including any legal costs and other costs of the sale, before the second mortgage can be pai'f there is not enough money from the sale of the home, the second mortgage does not get paid. The same theory holds true with a second mortgage. Because the lender of the second mortgage is second to be paid off in the event of a default, and because there is a greater chance that there might not be enough equity in the home to pay off the second mortgage in full, second mortgages are usually given at a higher interest rate than are first mortgages; irregardless of who the borrower is. Second mortgage repayment terms can vary considerably, so it is important that you look around for the one that is best for you. For the most part they range in length from 5 to 20 years, with the majority of second mortgage loans being 10 to 15 year' select number of lenders will offer a 30 year amortization and some of them will balloon (set a maturity date) of 15 year'his loan is called a 30 due in 1'enerally, just like first mortgages, the longer the maturity, the higher the interest rate'Also, just like first mortgages, the higher the credit score (FICO) the lower the interest rate.

Just as the length of the second mortgage can vary, so can other repayment terms. The majority of second mortgages are paid back in equal monthly payments with a portion of the payment going to interest and a portion to the principal balance, just like a first mortgage.

Types of Second Mortgages The two most common types of second mortgages are the fixed rate and the HELOC (home equity line of credit'he former is a standard offerin'The HELOC is a little unique and has been very popula'The loan typically calls for interest only payments for the first 5 to 10 years and then the line of credit is frozen at the outstanding balance of the loa'At that point, the loan payments are recast and a standard principal and interest payment is established for the remaining 10 to 20 year'The HELOC's are typically priced with a variable interest rate that is most commonly indexed to the New York City prime interest rate.

Pricing on the HELOC's is like other loan pricing; the lower the FICO score and the higher the loan to value, the higher the interest rate.

When considering a second home mortgage, be sure to shop around and then talk to lenders to ensure that you get the best deal for you!

Insurance

Loans

Mortgages

Credit Cards

Best
Compare

Debt

Consolidation