A second mortgage is a fixed rate, simple interest, installment loan, recorded as a lien on the property title deed behind the existing first mortgage. Equity in your home can be accessed without refinancing the current mortgage, which can save money on costs, and retain an existing low rate.
The guidelines can vary depending on the lender, some may have a limit of 80% loan to value, while others may offer loans up to 100% of value. Homeowners who have little, or no equity, may be able to qualify for cash out, but good credit is the key to a high loan to value second mortgage program. Also, see FHA loans as an alternative for a high loan to value, or lower credit scores.
The cash out from a second mortgage can be used for any purpose. Paying off high interest debt is a common use which can provide several benefits, such as: reducing monthly payments, changing compound interest into simple interest, and saving money from a possible tax deduction.
Second mortgage rates can be influenced by a number of factors such as: credit scores, the amount of the loan requested, debt to income ratio, your disposable income, and the value of your home.
Payment terms are usually offered in 5 year increments, which can range from 5 to 30 years. Fully amortized, fixed rate second mortgages are scheduled to be paid off at the end of the designated term as specified in the loan documents, with no balloon payment due.
Second mortgage interest payments may be tax deductible for a primary home, with a limitation for the deduction set at the a maximum of $100,000 or 100% of value. Check with an advisor.
The full second mortgage balance, minus any closing costs, is paid in one lump sum at the close of the loan process, unless there is an agreement to pay any third parties directly. For example, a lender may require some borrowers to pay off certain debts in order to meet the debt to income ratio. Also, if you have a line of credit or home equity loan, it must be paid off with the new loan.
Sunday, May 11, 2008
How Do Second Mortgages Work?
Sunday, May 4, 2008
House Panel Approves Bill to Assist Borrowers
The House of Representatives Financial Services Committee on Thursday approved a sweeping bill led by the Democrats to finance $300 billion in distressed mortgages with the aim of helping homeowners facing the threat of foreclosure.
The Financial Services Committee approved the bill 46 to 21, with 10 Republicans joining the Democrats in favor of it. The committee chaired by Rep. Barney Frank, the main author of the bill stressed the need for urgency.
"There are people who made loans that should not have been made; there are some people that were wrong to take loans out, some wrong to make the loans. If nothing happens all those loans go under foreclosure, the economy suffers," he highlighted.
The Massachusetts Democrat also said he hoped President Bush would sign the bill if it reached the White House as part of a wider package and it contained the legislation that Mr. Bush had demanded.
The new loans would be limited to no more than 90 percent of a property's value based on an updated appraisal. The government would retain a stake in any future sale of the property, worth 3 percent of the initial loan balance or 50 percent of net profit from a sale, whichever is greater.
Borrowers would have to demonstrate the ability to repay the new loan and if they default, they will forfeit the property. Democrats say the plan could help as many as 2 million homeowners.
House Panel Approves Bill to Assist Borrowers
By: MortgageLoan.com
