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21
The Second Mortgage
Filed Under (Debt) by admin on 21-08-2008
An individual’s home is the biggest asset that one has at his disposal. A home to back you
up when you need a loan is one of the greatest advantages of home ownership. In recent
years, there has been a major boom in the amount of people looking to use their homes as
a way to get access to extra money when they need it most. One of the best ways to do
this is through a second mortgage.
Second mortgage loans are loans that are made in addition to the first mortgage, and it is
usually based on the amount of equity that the borrower uses to build into his home.
Usually it’s required to fund home renovations. Since the borrower has already been
through the process once, the underwriting that is required to get a second mortgage is
much simpler than it was the first time around when the borrower had taken the first loan.
The cost of the transactions involved will be lower when the borrower applies for the
loan second time. This usually happens for the fact that interest rates on the second
mortgage are a bit higher than they were on the first one. But then, there are some
positive points too. For example, the fact that the interest paid on the loan may be tax
deductible. In most cases the interest is 100% fully deductible as long as the combined
loan to value of the 1st and 2nd mortgage does not exceed the value of the home.
On a second mortgage, one borrows a fixed sum of money against the home equity, and
pays it back after a specific time. The amount borrowed will be combined with the
amount the borrower still owes on his first mortgage. But there are a few things that one
should keep in mind. First of all, one should not take a second mortgage on his home
unless one has made payments on the original mortgage balance for a good amount of
time. One may be able to get a second mortgage if one does not have much equity, but
then the loan rates will be much higher, and the amount that one can borrow much lower.
It will essentially be a waste of time and money.
A second mortgage is a loan that is secured by the equity in ones home. While obtaining
a second mortgage loan the lender places a lien on the borrowers’ house. This lien will be
recorded in 2nd position after the primary or 1st mortgage lender’s lien, hence the term
second mortgage. Second mortgages aren’t for everyone. Borrowing more than 80% of
the home’s value will subject the borrower to private mortgage insurance. The monthly
payments should also be a factor. If one refinances in the future, he will have to pay off
the 2nd mortgage.
Loan proceeds from a second mortgage loan can be used for just about anything. Many
consumers take out 2nd mortgage loans to consolidate debt, do home improvements or
pay for their children’s college education. Whatever one decides to do with the loan
proceeds it is important to remember that if one defaults on then payment then he can
lose his home. So one would want to make sure that he is taking the loan out for a
worthwhile purpose.
Thus we see that a second home loan can be of great help to the borrowers, although the
borrower must take steps to ensure that he does not squander away the advantages of
second mortgage.
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