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Second Mortgage

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Home ownership has the benefit that it allows you to use your home as collateral and borrow needed money against it, by taking a second mortgage.

Second mortgage interest rates
The 2nd mortgage interest rates on the market today are affordable. In some cases, interest payable is below the prime lending rate.

Conversion of the equity or right of ownership of your home into a line of credit is now possible. This allows you to borrow against your property whenever you may need to.

It is important to remember that your house will be pledged as security for such a loan, so you must choose the best financial deal and keep your budget limitations and long term income in mind.

The Second Mortgage vs. the First Mortgage
A second mortgage is a loan taken after the first mortgage, and it is secured against the same assets as the first.

It is based on the amount of equity or interest or ownership you have in that property based on the difference between the current value of the property and the amount you owe on it.

Second mortgages are arranged for various purposes, such as financing home improvements, college tuition fees, debt consolidation or other emergency expenses.

If you have gathered enough equity, another option is to refinance your home and borrow funds in excess of your current loan balance.

Usually, a second mortgage carries a higher rate of interest than a first mortgage. So if interest rates are low or start decreasing, refinancing becomes a more appropriate option.

Since underwriting guidelines are less strict for second mortgages, it usually takes less time and effort to get a second mortgage than to refinance a loan.

A second mortgage may have low transaction costs, so despite higher interest rates on second mortgages, in the long run they may turn out to be less expensive than refinancing.

Choosing a 2nd Mortgage
When choosing a 2nd mortgage, you can typically choose between three types:

• A traditional second mortgage,
• A home equity loan, or
• A home equity line of credit.

On the other hand, a home equity line of credit sets a maximum loan amount on the sum total of the first and the second loan. It is usually 75% to 85% of the appraised value of the property.

Your home equity is an open ended line of credit, and you can draw money against it at any time.

It allows you to pay the loan back within a set time period, without having to comply with regular and strict monthly installments.

Consideration of all your options, before you decide on your second loan that’s what is import.


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