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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.


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.


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.


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.


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
Related Forum Discussions
Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I am looking for a second mortgage to pay off some debts and make home improvements. Does anybody know who will do this for a mobile home that is 16 years old with alot of updating and extras? There is a covered front and back porch, 3 car car port, addition, fresh paint, new flooring, etc.

Like | Dislike | Share | Posted: Thu, 02/04/2016 - 23:52 | Post subject:

Samantha's picture
Samantha | Joined: September 16, 2005 11:59 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi guest,

If you are looking to purchase and do repair work on the mobile home, then FHA 203K mobile home loan would be the right option for you.

However, there are other options as well. I suggest that you go for a no-obligation free loan consultation on the right mortgage with the lenders in this community. Hopefully they can help you to decide upon the loan option that'll suit you better.

May god bless you.

Samantha

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

We have $417,000 at 5.625 on 30 year fixed but a variable rate 2nd line with a balance of $195,000 the value of the home apprasied between $730K and $750K. What are our options to lock the 2nd?

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helping_user's picture
helping_user | Joined: March 31, 2006 03:39 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Welcome newuser.

Are you trying to refinance the second mortgage? I think a combined refinance loan including both the first mortgage and second line of credit would help you better.

Thanks.

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lisa.scherzer's picture
lisa.scherzer | Joined: January 4, 2008 08:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

newuser1,

Check your paperwork on the second mortgage to see if you have a lock option. Most banks do not offer this but some do so do this first. If they do not, then you might be better off leaving it as an adjustable for now. Fixed second mortgage rates are pretty high right now. Your looking at 9% fixed even with good credit. I would bet that with the adjustable rate you currently have that it can't be much higher than 6%.

If you just hate having the second mortgage adjustable rate, you could look at combining the first and second into a new first mortgage at a fixed rate which would be slightly higher than what you have now.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

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Caron's picture
Caron | Joined: July 19, 2005 08:37 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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%

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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 [url=http://www.mortgagefit.com/refinance.html]refinance[/url]?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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jerry's picture
jerry | Joined: October 17, 2005 03:24 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

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sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Can I use my home equity on my principle residence to purchase a vacation home?

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Niicss's picture
Niicss | Joined: October 3, 2005 11:54 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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 [url=http://www.mortgagefit.com/home-equity.html]home equity loan[/url]. 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.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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 ??????

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jameshogg's picture
jameshogg | Joined: December 20, 2005 02:58 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

What if I am upside by $3000 on my home loan based on a recent appraisal?

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

Say I get a 2nd mortgage to buy a house and I can't pay my bills which houes will they take?

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Caron's picture
Caron | Joined: July 19, 2005 08:37 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

Hi,

[i:09ccdbabfb]To JPloggie[/i:09ccdbabfb],

Do you want to [url=http://www.mortgagefit.com/refinance.html]refinance[/url] 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.

[i:09ccdbabfb]To peggy[/i:09ccdbabfb],

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

I was wondering if you can take out a 2nd [url=http://www.mortgagefit.com/home-equity.html]home equity loan[/url](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?

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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sara's picture
sara | Joined: July 5, 2006 03:16 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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%.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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lociamb's picture
lociamb | Joined: May 28, 2009 04:48 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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??

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adonis's picture
adonis | Joined: October 22, 2005 05:04 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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manoj_gopale's picture
manoj_gopale | Joined: February 16, 2009 10:31 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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:

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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!

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smith.sussane's picture
smith.sussane | Joined: September 18, 2008 09:57 pm | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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?

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gmakerley's picture
gmakerley | Joined: November 9, 2007 07:36 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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.

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Anonymous's picture
Anonymous | Joined: June 8, 2004 01:06 am | Posts: 0 | Location: New Jersey | 00 Dollars($)

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

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