Second Mortgage Options

A second mortgage, or home equity line of credit, is a great way to finance a child’s education, pay off debt, cover the cost of home improvements or even use for a down payment on a second home. Through property appreciation over the years, many homeowners have built up substantial amounts of equity in their homes. A second mortgage provides an excellent way to tap into that equity. But before incurring more debt, and placing another lien on their property, homeowners should investigate all of their options. They should consider current interest rates, loan terms, types of loans available and their ability to make higher mortgage payments each month. So with that in mind, here are the top questions about second mortgages, to help you decide if this is the right option for you. 

 

Frequently Asked Questions ( 10 )   Add a Question

  1. What Does Home Equity Mean?
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    Home equity refers to the difference between a home's fair market value minus any outstanding liens on the property. Equity increases as the homeowner pays off their first mortgage (if there is one), or as the property value increases.

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  2. What Options Are Available To Take Advantage of Built Up Equity?
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    The most common option is a second mortgage, a home equity loan, or a home equity line of credit (or HELOC). Some lenders use the terms, “second mortgage” and “home equity loan”, interchangeably. Another way to tap equity is to refinance an existing mortgage and increase the amount borrowed.

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  3. What Is a Second Mortgage?
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    A second mortgage is a loan that places a second lien on a property. If foreclosure occurs, the primary lender gets paid first, and then any remaining proceeds go to the second mortgage lender. The second mortgage usually carries a higher interest rate than the first mortgage. These loans come in fixed or variable rate.

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  4. What Is a HELOC?
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    HELOC refers to a mortgage loan set up as a line of credit. Usually these loans are second mortgages, but can also be the primary mortgage. When there is no first mortgage, or it is used to refinance the first mortgage, then the HELOC becomes a first mortgage. A HELOC always has a variable interest rate.

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  5. How Much Can Someone Borrow With a Second Mortgage?
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    The amount that may be borrowed depends on the available equity in the home. Lenders will usually do an appraisal to determine a property’s current market value. Most lenders will lend up to about 80 percent of accrued equity.

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  6. What Are the Costs Involved?
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    Lenders typically charge loan origination fees, appraisal costs, and points. “Points” are a fee that lowers the interest rate of the loan. Some states limit the fees a lender can charge on a second loan. Also, some lenders offer loans with no upfront costs.

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  7. What Is An ARM?
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    ARM stands for adjustable rate mortgage. ARMs have periodic interest rate adjustments over the term of the loan. It is very important that a borrower know when and how often the rate can be changed. They should also be aware of the maximum rate the loan can go up to.

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  8. What Are the Benefits of a Second Mortgage Or HELOC?
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    A second mortgage provides borrowers with a lump sum of cash that can be used as they see fit. Also, borrowers can stretch payments out over many years. The interest portion may also be tax-deductible.

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  9. What Are the Risks of a Second Mortgage OR HELOC?
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    Second mortgages are liens on the property. Homeowners, who fall behind on payments, risk losing their homes to foreclose the same as if they fell behind on the first mortgage.

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  10. Who Are the Best Lenders For a Second Mortgage?
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    That will depend on the borrower. Some may chose a lender based on a current relationship, while others may go straight for the best rate. The five largest mortgage lenders in 2016 were Wells Fargo with 12.7%, Chase at 6.3%, Quicken Loans at 4.7%, and U.S. Bancorp with 4.2.

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