Second Mortgage, What is It?

Second Mortgage What Is It Exactly

Everyone has heard a friend or relative complain about
having to take out a second mortgage but don’t really know
what that means. Let’s find out!

The real term for this is called a home equity loan. This
is a common loan type that homeowners can use for whatever
they want.

A home equity loan requires that you use your house for
collateral just like a normal home loan. There are
different types of home equity loan out there and you can
always use the money for whatever you want.

College, bills, and home repairs are some common uses. You
will need outstanding credit to be approved for this kind
of loan though.

A closed end type home equity loan gives you a big chunk of
money immediately and you can’t get another loan until this
one is fully paid.

The amount you can get depends on factors such as how much
your home is worth, your income, credit score, and similar
things. A closed end loan usually comes as a fixed rate
type and allows you up to 15 years to pay it off.

An open ended home equity loan is a little different. This
loan will let you borrow money whenever you have a need for
it.

The loan lender will set up a line of credit that is pretty
much based on all the same factors as the closed end loan.
These usually have an adjustable rate and you can make
payment for 10, 15, or even 30 years.

So why are these called second mortgages Because you are
adding yet another loan payment that uses your house as
collateral and adding another monthly payment. Though
tempting, it can cause you a lot of problems in the future.

 

Related articles

• A Guide To Mortgage Equity Loan Options (massrealestatenews.com)
• Home Equity Loan Alternative: Peer Lending (bargaineering.com)

Your Credit and the Home Equity Line of Credit

If you are like most homeowners you have considered using a home equity line of credit to get out of debt with high interest rate credit cards. There are at rate credit cards. There are at least two schools of thought to consider if you want to get a home equity loan for such a thing.

One thing is that using your home as collateral to get out of debt is risky. Why? If you fail to make the home equity payments you can lose your home. Still yet, the days of your home equity high are gone. Remember, equity is the difference between how much you owe on the mortgage and how much the home is worth. For example, let’s say your home is worth $57,000. In today’s market, it may be worth $65,000. The difference, equity, is $8,000. If you decide to take out this loan remember you now are adding another bill to your already overloaded expenses, so make sure you can handle this before doing it so you will not be facing foreclosure, as a result.

Another option would be to cut up the high interest rate credit card and pay more than the minimum until you get the card paid off. Do not close the account when you are paying it down because that can affect your credit negatively.