Getting a Second Mortgage in Today s Market
Normally, a person home is their largest asset they have. In addition, it is something you can live in comfortably and make improvements when the time comes. Recently, there has been a noticeable spike from homeowners taking money out of their home to make improvements, buy consumer goods such as cars, or take needed vacations. One of the best ways to accomplish that is a second mortgage or home equity line of credit.
Logically, if you are getting a second mortgage, then you already have a first mortgage in place. How much you can extract is based on the equity you have which has been slow in the past two years depending on your location. Typically, qualifying guidelines for a second mortgage is less stringent than a first mortgage until 2007. Nowadays, you must provide full documentation unless you have 40% equity whereby you can get a no doc mortgage in second position from private institutional sources.
Depending on your credit situation, the costs for a second mortgage will be much lower than a first mortgage due to the loan amount and a number of other factors. On the other hand, interest rates on seconds are usually higher than a first mortgage.
A second mortgage is defined as a fixed amount of money secured against the home equity in your home which the borrower will repay after 10, 15 or 30 years. The lender will place a lien on the property for this debt obligation.
The proceeds from can be used for almost whatever legal purpose the borrower desires. Most borrowers choose a 2nd mortgage to consolidate higher interest debt (e.g. credit cards, car loans, expand their business), make home improvements, or use it for their child's college education. Whatever one decides to do with their new 2nd loan, it is important to remember that if one defaults and does not make their payments then they can lose their home to foreclosure.
The amount borrowed on the second mortgage will be combined with the amount the borrower still owes on his first mortgage. For example, if your first loan is $200,000 and you want a second loan of $40,000 for debt consolidation purposes and your property is worth $266,000 then your new second mortgage will leave you 10% equity which most lenders are comfortable with. One should always consider and keep in mind that you should not apply for a second mortgage unless you know you are comfortable with making the new payments. In essence, your income should be stable and/or rising. Otherwise, it will essentially be only a matter of time until you lose the home.
Be diligent and shop around to find out the current home equity rates based on the equity in your home and credit score. See what you can do to raise your credit score to get a better rate on the second mortgage. You may find that getting a new first mortgage is better overall when you compared to your current first mortgage and a new second mortgage. Your goal should be to get to the best rate and terms for your current situation or wait a while to improve it.
Frank Collins is an investor and a contributor for Online Home Loans websites and Exotic Car enthusiasts.
Source: http://ezinearticles.com/
Added: March 20, 2008
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