You may need a lot of cash but cannot avail it through credit cards or any other means. Here's where a second mortgage can help you. This article gives you an overview of second mortgage and covers the following aspects:
What is second mortgage?
It is a loan taken against your home on which there exists a primary mortgage. The second loan has less priority compared to the first on the same property. So, if you default, you need to clear your first loan prior to paying off the outstanding balance on the second loan.
When do you choose a second mortgage?
There are situations when you may think of cashing out on your home equity.
- You may have accumulated a large amount of debt through auto loans, balances on high interest credit cards and other bills (medical costs, kid's tuition fees etc) and need to pay them off.
- There may be an opportunity for you to invest cash in a business. You can then use a second loan to go for it. But check out if the rate of return on your investment is higher than the second mortgage rate. Only then it will turn out to be a profitable venture.
- You may plan to avoid paying private mortgage insurance. But this is possible only when you get a second loan that makes up for 20% of the home purchase price.
- You may wish to repay debts and eliminate judgments, pay for your car, purchase a vacation property or plan for a vacation. You can obtain the required cash by taking out a second loan.
How much can you borrow?
A second home loan allows you to borrow on the basis of your home equity. The equity is the difference between the current appraised value of your home and the amount you have paid towards the first mortgage.
With most lenders, you can take a second loan such that the total loan-to-value ratio of your first and second loan is equal to 85% of the home's appraised value. However, there are lenders in almost all states excepting Texas and West Virginia who allow you to take out second mortgages equal to 125% of the appraised value.
What are the possible rates, terms and options?
The interest rates on a second loan are higher to that of the first loan. This is primarily because if you default, you will be paying off the first loan prior to that of the second and as such there is a risk involved in offering second mortgages.
However, you may choose either a fixed rate home equity loan or an adjustable rate home equity line of credit as your second home loan option. The lender will quote you a rate depending upon your credit score, total loan to value ratio and the current market trends. The loan term will vary from 15 to 30 years depending upon the option you choose. But in general, a second loan is offered over a shorter time period compared to a first loan.
How to get a second mortgage?
Getting a second mortgage is similar to taking out a first mortgage on your home. You need to shop for a suitable loan offer by approaching different lenders and getting quotes from them. You can simply fill out a no-obligation free short form to get quotes from the community ranked lenders. Then you should compare the quotes, find out the offer that can cost you less in comparison and provide all necessary paperwork while you apply for the loan. The lender will conduct an appraisal on your home in order to determine its current value and complete all the steps that are necessary to complete the loan processing so that he can arrange for the closing. At closing, you will be signing the note and other documents as required by your lender. You will have to pay closing costs similar to that of your primary loan.
What happens to the second mortgage if you refinance the first?
When you refinance the first loan after getting the second mortgage loan, you should request your lender for a subordination of the second loan. This implies that your second home loan will be considered as a junior lien compared to that of the refinance loan. Otherwise, if you do not subordinate it, the second mortgage will be taken as the first lien and the refinance loan will take over the second lien position. In this case, there will be less risk with the second loan but higher risk involved with the refinance as a result of which the first mortgage refinance will cost you more in interest charges.
With a second home loan, you get the chance to tap a large sum of money. Moreover, you can deduct the interest on your taxes up to a certain limit. But you cannot overlook the costs and the high interest rate associated with a second loan. Besides, if you default on the second loan, you may lose your home. Therefore, prior to going for a second mortgage, it is best to prepare a budget and find out how much you can afford to pay in addition to the first loan.
Related Articles Related Forum Discussions |
|
| Author |
Message |
Caron
Moderator
Joined: 19 Jul 2005
Posts: 1320
Location: florida
217.78 Dollars($)
|
 Posted: Tue Dec 20, 2005 11:19 pm Post subject: An overview of |
|
|
A 2nd mortgage requires similar costs that are payable in a first mortgage. The closing costs range from 3% to 6% of the loan amount. Lenders charge an administrative fee of about $250 along with an appraisal fee that lies between $300 and $400 for a standard owner occupied single family residence. They also demand fee for obtaining and checking the credit reports. This credit fee ranges from $25 to $65. There are also the title and escrow fees that may be slightly less than that of the first mortgage.
Most lenders allow for a "Flag" title insurance policy in a second mortgage having loan amount of $200,000. This policy requires the payment of a flat fee of about $125. Often a "Sub-escrow" or "Mini-escrow" fee is also charged. This fee amounts to something between $225 to $250. Apart from all these costs, the lender also charges standard notary fee, recording fee and pay off fees lying between $60 and $150. |
|
 |
Dauglas
Guest
0.10 Dollars($)
|
| Posted: Tue Dec 27, 2005 11:32 pm Post subject: Deducting second mortgage interest |
|
|
I am currently seeking for a second mortgage on my home. I will use the money for home improvements and to clear some debts. I have very little equity built up as I have recently bought the house. Can I write off the interest on the second mortgage? The loan is a 125% loan.
_________________
Need help choosing the right loan? Get free consultation from community lenders/consultant |
|
|
Jessica
Mortgage Mentor
Joined: 08 Jun 2004
Posts: 600
Location: OHIO
94.78 Dollars($)
|
| Posted: Tue Dec 27, 2005 11:45 pm Post subject: RE: |
|
|
Hi Dauglas,
Welcome to MortgageFit Forums.
Generally, you can claim a tax deduction on the interest that you are paying on your home mortgage. But you will have to acquire the property first and then borrow at least $100,000. You should also claim the interest on this loan as a qualified residence interest.
However for the interest to remain deductible there are certain limitations, for example, the secured loan balance cannot exceed the fair market value of the home. But a 125% loan is meant to exceed the fair market value of the home. And, lenders generally make such offers if you are willing to pay off the loan at higher interest rate and also if you have a good credit history.
You will be allowed for tax deduction on the interest on your 2nd mortgage but only if the sum of the first and second mortgages do not exceed your home value. Your home value is likely to increase if you go for home improvement. And, this will help to increase your liability to pay off the loan.
Regards,
Jessica |
|
|
tanesha
Guest
0.10 Dollars($)
|
| Posted: Thu May 11, 2006 6:46 pm Post subject: home loan to purchase another with bad credit |
|
|
| I am single mother looking for a bigger home in a better neighbor hood. I have be in my current home for six years. I do own it. I however have bad credit and I belive the chances of my purchasing another home is next to impossible if someone has any information I would like their input Thanks |
|
|
jerry
Moderator
Joined: 17 Oct 2005
Posts: 539
Location: MICHIGAN
49.58 Dollars($)
|
| Posted: Thu May 11, 2006 7:11 pm Post subject: RE: |
|
|
Hi,
Welcome to the forums.
Nowadays lenders are willing to give loan to the borrowers who have low credit score. But the interest rate that you will be charged on the loan is surely going to very high.
MortgageFit has a large network of mortgage lenders. What you all need to do is sign up with them, so that their loan department can find the best lender suiting your needs.
But if you take my advice I would ideally want you to wait for some more time and work on improving you credit score by working out on some of the basics, like planning your monthly budget and meeting your bills on proper time.
Please feel free to ask if you have any more doubts. 
Thanks,
Jerry |
|
|
Caron
Moderator
Joined: 19 Jul 2005
Posts: 1320
Location: florida
217.78 Dollars($)
|
| Posted: Thu May 11, 2006 9:12 pm Post subject: |
|
|
Hi Tanesha,
I agree with Jerry; it is always better to improve your credit profile before you think of taking a loan. Please go through our section on credit repair for some tips on how you can improve your credit score.
Thanks,
Caron. |
|
|
Meredith
Guest
0.10 Dollars($)
|
| Posted: Thu Jun 08, 2006 1:50 pm Post subject: second mortgage |
|
|
| I owe 105,000 on our house bought two yrs. ago. I took a home equity line of credit to get the other 10% for down payment. The house was initially assessed for 157,000. We have done alot of improvements. Can I take a second loan to get rid of the high interest debt I have. |
|
|
blue
Joined: 21 Oct 2005
Posts: 1135
Location: MARYLAND
134.28 Dollars($)
|
| Posted: Thu Jun 08, 2006 2:13 pm Post subject: |
|
|
Hi Meredith,
You can take a second loan provided you have built enough equity on the home.
BTW, what rates do you have on the debts?
_________________
Lets help each other. Try my blog |
|
|
jameshogg
Joined: 20 Dec 2005
Posts: 846
Location: nevada
97.16 Dollars($)
|
| Posted: Thu Jun 08, 2006 3:22 pm Post subject: |
|
|
Hi Meredith,
I understand your concern. There are no limits in the number of mortgages that you can take provided you qualify and you must also check that your purpose is served.
You can opt for refinancing of the 2nd mortgage also. If you get lower rate in refinancing your HELOC to a fixed rate second mortgage then you can go for it. But check whether the difference will benefit you when you need to pay the pre-payment penalty, if there is any.
James |
|
|
jojo
Guest
0.10 Dollars($)
|
| Posted: Sun Jun 11, 2006 5:06 am Post subject: second mortgage |
|
|
| we bought a house a year ago and we still owe about $280,000 and the value of the house is about $370,000 we want to consolidate all of our debt which will be around 80,000 can we still take a second mortgage of 80,000 and do you know how much monthly payment will i pay for the second mortgage |
|
|
adonis
Joined: 22 Oct 2005
Posts: 1172
Location: ALASKA
95.75 Dollars($)
|
| Posted: Sun Jun 11, 2006 7:55 am Post subject: RE |
|
|
Hi, Jojo
Thats all depend on the amount of the loan and terms agreed. Basically it will be calculated on the interest as well.
_________________
Procrastination is the enemy of your financial sucess |
|
|
Woody
Guest
0.10 Dollars($)
|
| Posted: Mon Jun 12, 2006 1:01 pm Post subject: 2nd Mortgage |
|
|
| I bought my home about six month ago. I do not really have any equity built up yet. Can I do a 2nd? |
|
|
Samantha
Moderator
Joined: 16 Sep 2005
Posts: 1437
Location: MASSACHUSETTS
118.44 Dollars($)
|
| Posted: Mon Jun 12, 2006 1:34 pm Post subject: 2nd Mortgage |
|
|
Hi Woody,
Welcome to MortgageFit Forums.
You can get a home equity loan without any equity on your home with some lenders. For that you will have to pay significantly higher interest rates and closing costs. PMI will be required.
Home equity loans are cheap if you have already enough equity on your house. If you try to borrow before you have built some equity you will get it with a little shopping around but you need to pay higher costs and will get fewer perks.
God bless you.
For MortgageFit,
Samantha
_________________
Know how to compare lenders with mortgage booklet |
|
|
Remo
Guest
0.10 Dollars($)
|
| Posted: Mon Apr 23, 2007 2:56 am Post subject: Should I go for second mortgage refinance? |
|
|
| I have a mortgage and a second loan on the same property which is my primary residence. I have used the second mortgage to purchase a second home which I thought will be able to sell within a few months of time. But time is over and it has been over 6 months since I tried to sell the home. So, what I can think of is, either I go for the second mortgage refinance or rent the second home or short sale will be ok? Either of these would be better than foreclosure, isn't it? Pls help me decide which will be the right way. |
|
|
