Posted on: 28th Jun, 2005 06:49 am
Sometimes you may need a lot of cash, but can't find any other way to get it, except by pulling equity out of your home. Here's where a second mortgage can help you. This article gives you an overview of second mortgages and covers the following aspects:
| Do it yourself! Check out whether second mortgage is the right option for you |
What is second mortgage?
It is a loan taken out against your home after you have already taken out a first or primary loan. The equity that you have built up in your original home is utilized as the collateral to take out the second loan.
A second mortgage is considered as the subsidiary to the first one. In case you default on both the loans, it is always the first mortgage which is repaid first. The second mortgage is taken care of only after the first mortgage is being fully repaid.
A second mortgage is considered as the subsidiary to the first one. In case you default on both the loans, it is always the first mortgage which is repaid first. The second mortgage is taken care of only after the first mortgage is being fully repaid.
When should you choose a second mortgage?
There are situations when you may want cash out some of your home equity by taking out a second mortgage. They are
- You have accumulated a large amount of debt and need to pay them off.
- You wish to invest elsewhere or you may be begin a new business.
- You want to avoid paying private mortgage insurance. This is possible only when you get a second mortgage that makes up 20% of the home purchase price.
- You may want to spend on expensive items such as a new car, new property, or new appliances.
- You want to remodel or add to your home.
How much can you borrow?
A second home loan allows you to borrow based on your home's equity. The amount of the loan that you have already repaid is the amount of equity that you have built up in your home. Your equity symbolises your home ownership.
Usually, majority of the lenders offer you a second mortgage loan up to the point where the loan to value (LTV) ratio of the first and the second loan together amounts to 85% of the appraised value of the home. However, there are lenders in almost all states, except Texas and West Virginia, that allow you to take out second mortgages equal to 125% of the appraised value.
Usually, majority of the lenders offer you a second mortgage loan up to the point where the loan to value (LTV) ratio of the first and the second loan together amounts to 85% of the appraised value of the home. However, there are lenders in almost all states, except Texas and West Virginia, that allow you to take out second mortgages equal to 125% of the appraised value.
What are the possible rates, terms and options?
Interest on a second loan will be higher than with a first loan. The reason behind this is that in case you default, the original mortgage is repaid first and the second one is repaid thereafter. So, it is quite evident that more risks are attached to a second mortgage than in case of the first mortgage.
Second mortgages are available as adjustable rate home equity lines of credit and fixed rate home equity loan. The lender will quote you a rate depending upon your credit score, total loan to value ratio, and current market trends. The loan term will vary from 15 to 30 years depending on the option you choose. But in general, a second loan is offered for a shorter time period than a first loan.
Second mortgages are available as adjustable rate home equity lines of credit and fixed rate home equity loan. The lender will quote you a rate depending upon your credit score, total loan to value ratio, and current market trends. The loan term will vary from 15 to 30 years depending on the option you choose. But in general, a second loan is offered for a shorter time period than a first loan.
How do you get a second mortgage loan?
In second mortgage, you use the same process you used to find your first mortgage. You need to shop around for a suitable loan by approaching different lenders. You can simply fill out a free short no-obligation free form to get quotes from community ranked lenders on this site. Then you should compare the quotes, find the offer that will work best for you. Finally, you need to fill out the necessary paperwork to apply for the loan. The lender will conduct an appraisal of your home in order to determine its current value, complete all the steps necessary to process the loan, and arrange for the loan closing. At closing, you will sign the note and security instrument required by your lender. You will be liable to pay the closing costs for the second mortgage also, similar to what you paid while obtaining the first mortgage loan.
What happens to the second loan if you refinance the first?
When you refinance the first loan after getting the second mortgage loan, the second loan still remains in its subordinate position. Your refinance lender ensures that the refinance loan becomes the primary loan and the second loan remains subordinate to the refinance loan.
A second home loan gives you the chance to tap handsome amount of money in exchange of home equity. Moreover, you may be able to deduct some of the interest from your income taxes. However, there are a lot of additional costs involved with taking out a second loan.
In addition, if you default on the second loan, you may lose your home in a foreclosure. So, before making the decision to take out a second mortgage loan, you should make proper financial planning. You need to find out the total monthly obligations of taking out the two loans and check out whether it is within your affordable range or not.
A second home loan gives you the chance to tap handsome amount of money in exchange of home equity. Moreover, you may be able to deduct some of the interest from your income taxes. However, there are a lot of additional costs involved with taking out a second loan.
In addition, if you default on the second loan, you may lose your home in a foreclosure. So, before making the decision to take out a second mortgage loan, you should make proper financial planning. You need to find out the total monthly obligations of taking out the two loans and check out whether it is within your affordable range or not.
What are the limitations of a second mortgage?
Despite its various uses, a second mortgage is fraught with some limitations. These limitations are -
- High chance of losing the home - By taking out this loan, you add to the risks of losing your home. If you fail to make payments on your second loan, you may end up losing your home. You need to ensure that the purpose for which you are taking out the loan is worth the risks that you are taking.
- Rate is higher than the rate on first loan - The rates on second mortgage are relatively higher than the rates on the first mortgage loans. This is so because in the event of default, it is the original mortgage which is repaid first. The repayment of the second mortgage is taken care of later.
- Fees may be hefty - Sometimes, a second mortgage may involve hefty fees. This adds to the costs of taking out the second loan.
Related Articles
- What happens if you stop paying your 2nd mortgage?
- Is Second mortgage interest tax deductible?
- What happens to second mortgage after deed-in-lieu of the first?
- Second mortgage charge off - What does it mean?
- 10 Big Mistakes while looking for second home loan
- Tapping your equity with a Home Equity Line of Credit
Related Forum Discussions
- Can I get second home loan with bad credit?
- Should I take out second mortgage to pay for credit card?
- Home sold due to foreclosure - Am I liable for second loan?
- Do I need to pay for second loan even after charge off?
- How can I pay off 2nd home mortgage faster?
- 2nd mortgage lender rights over the 1st mortgage holder
- Can 2nd mortgage company sue after foreclosure on first?
based on those numbers, it honestly doesn't look like it.
Is there anything else that we might be able to do?
Hi BJM...why do you want to take a second mortgage? If the appraised value of the property is less than the mortgage, you would neither qualify for a second mortgage nor will you qualify for a refinance.
Can anyone tell me if there are any banks lending at a CLTV of 95% for jumbo loans?
Hi Violet,
Jumbo loans are hardly available these days. Most lenders are not offering jumbo loans to borrowers. Moreover such loans have high interest rates as well. You should contact your local lenders and check out if you qualify for such a loan or not.
Thanks
Jumbo loans are hardly available these days. Most lenders are not offering jumbo loans to borrowers. Moreover such loans have high interest rates as well. You should contact your local lenders and check out if you qualify for such a loan or not.
Thanks
if the first mortgage is in my parents name, but i have the quit claim deed to this house, would it be possible for me to obtain a second mortgage in my own name. i make the current house payments to my father and he sends it to the mortgage company. there is quite a large amount of equity in the house; however i do not want to borow all of it.
thank you.
thank you.
Hi Kandie!
Welcome to forums!
As the property is in your name, you would be able to get a second mortgage in your name. You've mentioned that you've a large amount of equity in the property. In such a situation, it would be better if you could refinance the first mortgage in your name. This will leave you with one mortgage payment. Moreover, it will also help you build your credit.
Feel free to ask if you've further queries.
Sussane
Welcome to forums!
As the property is in your name, you would be able to get a second mortgage in your name. You've mentioned that you've a large amount of equity in the property. In such a situation, it would be better if you could refinance the first mortgage in your name. This will leave you with one mortgage payment. Moreover, it will also help you build your credit.
Feel free to ask if you've further queries.
Sussane
kandie, i believe you're going to run into some difficulty. inasmuch as the first mortgage on that property is not yours, a lender is going to want to investigate further. i don't know if anyone will be willing to take a risk such as you describe - granting a new secondary mortgage behind a first mortgage that isn't your own.
i know i've never heard of it happening - perhaps someone else has had some sort of experience in this type of thing.
i know i've never heard of it happening - perhaps someone else has had some sort of experience in this type of thing.
Hi!
I want to buy an investment property but all loans for investment require 20% down (around $25000).Is it worth it to take second mortgage to pay the 20% or I need to look for other ways to come up with the money?
Thanks
I want to buy an investment property but all loans for investment require 20% down (around $25000).Is it worth it to take second mortgage to pay the 20% or I need to look for other ways to come up with the money?
Thanks
We have been in our house for 8 months. We would like to pay off some credit cards. Our house was appraised for 427K when we moved in; we now owe 389K. We have very good credit. Does anyone offer HELs for LTVs @ 90%?
To emily,
If you take a second loan, then you would be liable to pay off two separate loans. You can ask your friend's or relatives to gift the money for the downpayment. In my opinion, it would be a better option for you.
To mbt,
With a LTV ratio of 90% it would be difficult for you to get a loan. Lenders will ask you for a private mortgage insurance (PMI). This will help the lenders to recover their dues in case you default your loan payments.
If you take a second loan, then you would be liable to pay off two separate loans. You can ask your friend's or relatives to gift the money for the downpayment. In my opinion, it would be a better option for you.
To mbt,
With a LTV ratio of 90% it would be difficult for you to get a loan. Lenders will ask you for a private mortgage insurance (PMI). This will help the lenders to recover their dues in case you default your loan payments.
mbt, i have to say i am puzzled about what you want to do. based on your numbers - $389K balance and $427K value, you are already at 91% ltv. clearly you'd have to come up with cash out of pocket to drive the ltv down to 90%.
In the process of getting a 2nd mortgage as well as a reverse mortgage, I truly hope people are beyond careful for the potential for fraud.
Sense on Cents
Sense on Cents
larry, your sentiment is well-received ("beyond careful") but i have to say i don't quite get the first phrase - how do you manage to be in the process of obtaining a second mortgage at the same time as a reverse mortgage?
hi, i bought my home a year ago and now i'm looking for some type of loan against my property, so i can do some home improvement and pay some of my credits off.