Second Mortgage

A second mortgage is a loan against the equity in a home that the owner has an existing first mortgage against. This is also often called a refinance, although refinancing your home can simply mean that you are taking out new loan for the remaining balance owed on the home. The loan may be 80% up of the existing equity.

The equity is figured by subtracting the first mortgage current balance from the homes appraised value. An example would be that the home appraises for $120,000. The amount due on the existing first mortgage is $65,000. The equity in the home would be the difference between the $120.000 and the $65,000, or $55,000. A lender would make a second mortgage based on this amount and it could be 80% or more of the $55,000. The determining factor for what the percentage may be is the credit worthiness of the borrower. Most second mortgage and refinance companies will make a loan it there is enough equity. The credit rating of the borrower will set the interest rate on the 2nd mortgage or refinance and the amount that will be loaned.

There are many good reasons to consider using a second mortgage for raising money, such as upgrading the home, remodeling, medical bills, college expenses, paying off higher interest bills, or a new car. Paying off high credit card expenses is an excellent reason, as you can usually save on the interest rate and lower the monthly payments. The lowering of payments will help the family budget and maybe make the finances easier to live within. Another reason to use a 2nd mortgage is that the interest paid is tax deductible.

Make sure that there is no penalty if you pay off the second mortgage early. If you are borrowing to fix the house up to then sell it, this is a must condition of the 2nd mortgage. Negotiate through a mortgage broker or with several second mortgage lenders. Remember, this is a negotiated loan and there are no set rules other than those used by each lender. Make sure you understand in advance any extra fees the lender will charge in order to process the loan. Points and fees are negotiable and not set in stone. All of these factors are why you should consider using a mortgage broker or several lenders that are expert in 2nd mortgages or refinancing.

Use the Internet to get a feel for what is being offered and what your cost will be to get the loan. Internet seconds could also be used to discover what interest rates are being quoted.

Another way to find help with a 2nd mortgage is to call several lenders found in your local yellow pages. Answers from these sources can give you an even better feel for what you can get and the expenses involved. Be very careful that the expenses are spelled out so you will not be surprised at closing.

Borrowing on your home to buy a car may make sense and it may not. All factors should be considered like payments, insurance and interest comparisons. New car financing can be a very low interest rate proposition. Look at both alternatives and the best course should become apparent

If the loan is being made to pay off extensive credit card balances, remember that those cards should be kept only for emergencies. Going back into debt will be a huge mistake, as the equity in the home will be used up. Increasing your monthly payments again will defeat what the goal was when the second mortgage was procured. It may sound silly, but people do exactly that when they find themselves with some relief. The 2nd mortgage was made to gain on your financial situation, not to make it easy for you to add more debt.

A final reminder is this: compare offers and the fees. One of them will be the obvious choice.