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?
I live in Fl and we have a 1st mortgage with 170000 and 2nd mortgage with 196000 on the home. The home maybe worth 270000. I am making the monthly payment on 1st but can not pay the 2nd one. what can happen.
Hi niloofar!
You can go in for a refinance if it is possible for you and get another loan at a low interest. If this is not possible for you, then you may consult your lender and try to convince him for a repayment scheme which has easier terms and conditions and which you will be able to pay.
Thanks,
Jerry
You can go in for a refinance if it is possible for you and get another loan at a low interest. If this is not possible for you, then you may consult your lender and try to convince him for a repayment scheme which has easier terms and conditions and which you will be able to pay.
Thanks,
Jerry
I live in a doublewide mobile home with an attached garage on three acres of land. Tax value is 95,000.00, we owe 42,000.00. We've also tapped out a 17,000.00 equity loan. How difficult will it be to get a second mortgage?
Hi Alexander,
Welcome to our forums.
It seems that you have tapped an equity loan. An equity loan itself is a second mortgage. So, can you please clarify your question with some more details so that I can give you a concrete suggestion.
Good luck
Welcome to our forums.
It seems that you have tapped an equity loan. An equity loan itself is a second mortgage. So, can you please clarify your question with some more details so that I can give you a concrete suggestion.
Good luck
My husband and I took out a second mortgage on our home in order to pay off miscellaneous debt. Is their any benefit to paying off the second mortgage early considering that we can deduct the interest on our taxes? The interest rate for the loan is 12.9%
Hi Angela!
If the mortgage does not have a pre-payment penalty clause to it, you can easily pay off the mortgage as soon as possible. If there is a pre-payment penalty clause in the mortgage, then you will have to wait till the clause expires and then you can pay off the mortgage.
Thanks,
Jerry
If the mortgage does not have a pre-payment penalty clause to it, you can easily pay off the mortgage as soon as possible. If there is a pre-payment penalty clause in the mortgage, then you will have to wait till the clause expires and then you can pay off the mortgage.
Thanks,
Jerry
Due to divorce we need to sell a house on which we owe 345,000. The first mortgage is 285,00 which will be covered in the sales price. We will likely still owe 60,000 to USBANK on the HELOC. I am able to make the payments, but need to sell. Is short sale my only option, or is there some arrangement where the lien can be released and I continue to pay down the HELOC?
i am going threw a divorce from my husband and he has gone behind my back and opened a second morgage is this possible? i didnt sign any thing for this to go on. i am clue less about any of this. can some one help?
Hi
To Catey:
Short sale will be a good option but then you will have pay off the deficient amount immediately. Otherwise they may place liens or even garnish your wages. However, you can speak to your lender and explain the whole situation to him.
To penny:
It can happen that one person takes the loan while both own the property but in your case, your husband should have taken your permission as you are going through divorce. You can consult a lawyer in this case.
Thanks.
To Catey:
Short sale will be a good option but then you will have pay off the deficient amount immediately. Otherwise they may place liens or even garnish your wages. However, you can speak to your lender and explain the whole situation to him.
To penny:
It can happen that one person takes the loan while both own the property but in your case, your husband should have taken your permission as you are going through divorce. You can consult a lawyer in this case.
Thanks.
I am looking to buy a business and wondering how will i get a loan to start it?
I have already quit my job to work on that.
I have already quit my job to work on that.
Hi Sunnyc,
Welcome to the forums.
So, are you looking to get a second mortgage to buy the business? if you quit your job just before taking the loan, I don't think the lenders would consider you as a potential borrower.
Take Care
Welcome to the forums.
So, are you looking to get a second mortgage to buy the business? if you quit your job just before taking the loan, I don't think the lenders would consider you as a potential borrower.
Take Care
i am refinancing my house, i have a 1st and 2nd mortgage. the appraisal just came back and is $10k less than what i owe total for the two mortgages. my 1st mortgage holded said they would ask the 2nd mortgage place to subordinate. what happens when their is a $10k shortage if i can't pay the difference to refinance?
Our property has been valued @ $2m. The debt on this property is $1.3m, with the interest fully capitalised as it is currently under a Development Application Approval. However, in the meantime, we find out we owe the tax dept. $150,000. Our query is would it be possible to get a loan for this amount on a second mortgage? Also, we live in Australia, do you service this area? or could you recommend someone who does if not. Many thanks.
Hi Helen!
If I can understand you correctly, you want to take a second mortgage in order to pay off the tax debt. This can be possible provided your credit is good and you meet all the criteria to get the loan. You need to consult the banks located in Australia to get the loan. You can contact the lenders and check the rate and terms they are offering. Then you can compare them and select the one which you can afford.
Thanks,
Jerry
If I can understand you correctly, you want to take a second mortgage in order to pay off the tax debt. This can be possible provided your credit is good and you meet all the criteria to get the loan. You need to consult the banks located in Australia to get the loan. You can contact the lenders and check the rate and terms they are offering. Then you can compare them and select the one which you can afford.
Thanks,
Jerry
My godmother's house is being sold. The purchaser is taking out a second mortgage. According to her niece, the money f rom the second mortgage
is going into a trust fund for my godmother.. Something does not seem right about this. when I asked the question why.. The niece didnot seem to know any answer.. Is this legal?
is going into a trust fund for my godmother.. Something does not seem right about this. when I asked the question why.. The niece didnot seem to know any answer.. Is this legal?