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?
Hi peachtree,
I don't understand why a purchaser will take a second mortgage and put the money in a trust fund for your god mother. In my opinion, it's not legal. You should speak to the purchaser and clarify the matter.
Thanks.
I don't understand why a purchaser will take a second mortgage and put the money in a trust fund for your god mother. In my opinion, it's not legal. You should speak to the purchaser and clarify the matter.
Thanks.
MY SCORES ARE LOW 500'S, HAVE BEEN AND I CANNOT GET THEM UP, TRIED, I HAVE SEVERAL RE-ESTABLISHED CREDIT LINES AND REFERENCES, EARNED APPROX $200K IN INCOMES LAST YEAR AND YEAR PRIOR AND ALWAYS OVER 6 FIGURES, DEBT RATIOS ARE LOW, SAME LINE OF WORK LAST 20 YEARS, I OWE $165K ON MY HOME THAT RECENTLY APPRAISES AT $375K, I CANNOT GET A LOAN? ANY IDEAS OR SOMEONE WILL WILL OVERLOOK SCORES AND VERIFY ALL THE OTHER QUALITIES?
Hi Jim,
Welcome to the forums.
I'm afraid but I don't think any lender would overlook your credit score and offer you a loan, especially in today's market. Even FHA loans which are not strictly score-driven require you to have minimum of 580 FICO score in order to get qualified.
I understand that you have low debt to income ratio and good employment history but you need to raise your score. Check out the tips on improving credit score and try to rebuild your credit.
Do let me know if you have further queries.
Take care
Welcome to the forums.
I'm afraid but I don't think any lender would overlook your credit score and offer you a loan, especially in today's market. Even FHA loans which are not strictly score-driven require you to have minimum of 580 FICO score in order to get qualified.
I understand that you have low debt to income ratio and good employment history but you need to raise your score. Check out the tips on improving credit score and try to rebuild your credit.
Do let me know if you have further queries.
Take care
Can I use my home equity on my principle residence to purchase a vacation home?
hi meg
do you own the principal residence free and clear? i mean to say that whether there is any mortgage on the principle residence or not. if there is no mortgage on the principle house, then i think it is a good idea to tap the equity of your principle residence and buy a vacation home.
but if there is a mortgage on the principle residence, then i don't think it will be a good idea to take a home equity loan. because if the purchase price of the vacation home is greater than the amount you get from the home equity loan, then you will have to take another loan for the vacation home. thus, you will end up having 3 different loan which can be difficult for you to repay.
thanks.
do you own the principal residence free and clear? i mean to say that whether there is any mortgage on the principle residence or not. if there is no mortgage on the principle house, then i think it is a good idea to tap the equity of your principle residence and buy a vacation home.
but if there is a mortgage on the principle residence, then i don't think it will be a good idea to take a home equity loan. because if the purchase price of the vacation home is greater than the amount you get from the home equity loan, then you will have to take another loan for the vacation home. thus, you will end up having 3 different loan which can be difficult for you to repay.
thanks.
can i get a second mortage im employed and my husband is self employed so we would want get a self certified mortgage we owe 50,000 on the mortgage weve got now and the house is valued at 115000 the new house were after is 155000 is this possible if our first house is rented out ??????
Hi lukecooks,
Do you want to take the mortgage on the new property that you are planning to purchase? You may take a new mortgage but it will again depend upon your credit score and income history. Moreover, the lender will also look into the fact whether you are able to pay off the first mortgage on time or not.
Thanks
Do you want to take the mortgage on the new property that you are planning to purchase? You may take a new mortgage but it will again depend upon your credit score and income history. Moreover, the lender will also look into the fact whether you are able to pay off the first mortgage on time or not.
Thanks
What if I am upside by $3000 on my home loan based on a recent appraisal?
Say I get a 2nd mortgage to buy a house and I can't pay my bills which houes will they take?
Hi,
To JPloggie,
Do you want to refinance the home? if you're upside done, well, I don't think you can refinance. But you can sell the home and pay off the remaining dues.
To peggy,
The lender would obviously come after the first house. If he requires deficiency payment and you fail to pay it, only then the lender may place a lien on the other house. However, he may have to talk to the mortgage holder (or lender) of the other property.
good luck
To JPloggie,
Do you want to refinance the home? if you're upside done, well, I don't think you can refinance. But you can sell the home and pay off the remaining dues.
To peggy,
The lender would obviously come after the first house. If he requires deficiency payment and you fail to pay it, only then the lender may place a lien on the other house. However, he may have to talk to the mortgage holder (or lender) of the other property.
good luck
i was wondering if you can take out a 2nd home equity loan(or a comparable loan) at a different financial institution to pay off the 1st loan with another bank. we have dealt with the same bank for years, but have come to not trust dealings with that bank. we would like to cancel all of our accounts with that bank and try another. if that is possible, how would that work?
Hi Guest!
Welcome to forums!
You can refinance your loan at a lower rate with another lender. You will not have take a second loan in order to pay off the first one. You can contact the lenders of your area and check out the plans with them.
Sussane
Welcome to forums!
You can refinance your loan at a lower rate with another lender. You will not have take a second loan in order to pay off the first one. You can contact the lenders of your area and check out the plans with them.
Sussane
d&c, you simply need to find a new lender and request a refinance. they'll be happy, i'm sure, to help you out.
Hi me and my brother own a home. if he wants to take a loan out on the home does he have to have my signiture to do that or can he do that with out me knowing it. thank you and Godbless
Welcome pickle,
As far as I know, your brother will have to inform you about the loan. If you want to be a co-borrower of the loan, then your signatures are required on the mortgage docs.
As far as I know, your brother will have to inform you about the loan. If you want to be a co-borrower of the loan, then your signatures are required on the mortgage docs.