Second mortgages

A second mortgage is essentially a loan secured by your home that already has a first mortgage. The second mortgage allows the homeowner to tap into his or her equity to pay for college tuition, essential home improvements, purchase luxury items, and consolidate high interest existing debts such as boats, rvs, automobiles, and credit cards.

Because there is more risk involved with a second mortgage, the lender's conditions are usually more stringent, the term is shorter and the interest rate may be higher than for the first mortgage. In the event of default, the holder of the second mortgage is subordinate to the first.

To qualify for a second mortgage, your credit must be in good standing and you must be able to document your income. An appraisal will be required on your home to determine the home's market value.

By definition, a second mortgage is any loan that involves a second lien on the property, but you generally have two options: a home equity loan or a home equity line of credit.

Your loan will be limited to 85 percent of your home's appraised value minus your existing first mortgage balance. With a home equity loan, you borrow a lump sum of money to be paid back monthly over a set time frame, much like your first mortgage. However, the closing costs are normal ly much less than for a first mortgage and the rate - usually fixed – may be higher than for a first mortgage.

A home equity line of credit (HELOC) is an open line of credit tied to an equity-based maximum loan amount. You may use the account for a set period of time (5, 10 or even 20 years) as long as there are funds. Once your predetermined time period is up, you will be required to pay off the loan, making monthly payments on the principal and interest. The interest rate can fluctuate month to month on a home equity line of credit, which makes this option appealing when interest rates are low, but risky when interest rates increase.  Normally the interest rates are based on prime plus or minus a margin and the required monthly payment is interest only.  And as you pay back your loan balance, you will be able to continually access any available credit.

When deciding what type of loan is best for you, it is important to consider how you will use the money and how you intend to pay it off. Do you need money in one lump sum or intermittent over several months or years? Do you want a fixed interest rate so you can repay your loan in precise monthly installments or would you rather have the flexibility to make any size payment above the interest-only minimum? In today’s competitive market, there are many options available. I will help you find the right mortgage product for your lifestyle and financial needs.

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