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 bought my first home about a yr ago. But now i am looking into buy a foreclosure home as an investment because prices are so good right now. But i dont have the 20% that lenders are asking for downpayment. My question is would you be allowed to swing the idea of buying a house that you know has equity and use that as you down payment or is that not possible. thanks
Hi frank,
As far as I know, it would depend upon your lender whether he would let you use the equity in the property to buy another property or not. If you do not have the down payment of 20%, you can go for a PMI (Private Mortgage Insurance). If you go for this insurance, then you should not face issues in getting the loan.
Take Care.
As far as I know, it would depend upon your lender whether he would let you use the equity in the property to buy another property or not. If you do not have the down payment of 20%, you can go for a PMI (Private Mortgage Insurance). If you go for this insurance, then you should not face issues in getting the loan.
Take Care.
frank what you propose isn't possible.
sara, purchases of investment properties are requiring at least 20% down, so mortgage insurance is not an option. frankly, i'm surprised that frank found a lender that will allow as little as 20%.
sara, purchases of investment properties are requiring at least 20% down, so mortgage insurance is not an option. frankly, i'm surprised that frank found a lender that will allow as little as 20%.
my landlord took a mortgage out on his house to buy another house and now the house that we live in which he took the loan out on is up for forcloser. can both houses be taken
Hi deeshane!
Welcome to forums!
The landlord's lender can place a lien on the other house purchased by him if he cannot pay off the deficient amount resulting from the sale of the property.
Feel free to ask if you have further queries.
Sussane
Welcome to forums!
The landlord's lender can place a lien on the other house purchased by him if he cannot pay off the deficient amount resulting from the sale of the property.
Feel free to ask if you have further queries.
Sussane
If I get a second to pay off debt and then want to sell my house, I need to raise the purchase price by that amount?
that's a pretty good idea, sandi. any lender who grants you a second mortgage will not exceed the current value of your home to begin with, so that shouldn't cause you too much heartburn.
MY HOME IS WORTH 180000 I OWE 210000 FIRST AT 5.9% A 2ND 25000 AT 10% WE BOTH WORK/ LOANS ARE CURRENT / CREDIT SCORES HIGH / HAVE 20000 CREDIT CARD DEBT WHAT CAN WE DO TO LOWER BOTH MORTGAGES ?? IS LTV TOO HIGH??
Hi lociamb,
You've mentioned that you're current on your mortgage payments. In that case, you won't be able to lower your payments. Moreover, your owe more than the worth of the property. I would suggest you look out for Home Affordable Refinance. Check out if you can qualify for it.
You've mentioned that you're current on your mortgage payments. In that case, you won't be able to lower your payments. Moreover, your owe more than the worth of the property. I would suggest you look out for Home Affordable Refinance. Check out if you can qualify for it.
I will suggest you to nullify the credit card debt first as it is high interest loan.but do not completely close it.
Meanwhile you can go for obama government's new mortgage scheme.I do not have link currently.but it is really a nice solutions for those who owes more than what their home's price is....
keep in touch....
:arrow: :arrow: :arrow:
Meanwhile you can go for obama government's new mortgage scheme.I do not have link currently.but it is really a nice solutions for those who owes more than what their home's price is....
keep in touch....
:arrow: :arrow: :arrow:
Hi,
I have a first mortgage balance of 218K with interest rate 6% with one bank. I have a HEL balance of 29K with interest rate 5.49% and HELOC of 85K at interest rate 5% with another bank. I want to refinance. What is the best way to refinance? Do I consolidate all loans or do I refinance the first mortgage and do cash out to pay the HEL and HELOC?
Thanks!
I have a first mortgage balance of 218K with interest rate 6% with one bank. I have a HEL balance of 29K with interest rate 5.49% and HELOC of 85K at interest rate 5% with another bank. I want to refinance. What is the best way to refinance? Do I consolidate all loans or do I refinance the first mortgage and do cash out to pay the HEL and HELOC?
Thanks!
Hi KK!
Your query has been answered in the given link:
http://www.mortgagefit.com/refinance/loans-consolidate.html
Have a look at it. I hope it'll help you.
Sussane
Your query has been answered in the given link:
http://www.mortgagefit.com/refinance/loans-consolidate.html
Have a look at it. I hope it'll help you.
Sussane
Yes we bought our home at $28,000 and had to refianance our home about 5 years ago and we have a new loan out. Can we get a 2nd mortage to pay off our credit cards debt?
based on what you have given us, BJM, that is an impossible question to answer. you didn't state the value of your home, the amount you currently owe, etc. without that valuable information, any answers you get of an affirmative nature will be pure conjecture.
I'm not sure how much our house is worth. Five years ago they aprais the home at 75,000 and that's what we got and I have paid down to 68,000.00 now. So would this be our 1st mortage and can we get a 2nd mortage