What is a second 2nd mortgage?
A second mortgage is a loan that is secured by the home itself, and subordinate
to the first mortgage. Any 2nd Mortgage taken out against a home in addition
to an already existing mortgage automatically becomes a second mortgage. Often referred as a 2nd Charge or remortgage.
As the name implies, second mortgages or remortgage are
secondary to first mortgages. This means if the homeowner is forced into foreclosure, the
second holder will receive no proceeds from the sale of the home until the first has been
completely repaid. This is also referred to as 'home refinancing' or re-mortgage.
Typical second mortgage lenders offer a higher
interest rate than first loans. Second mortgages are usually shorter in duration (usually
15 years or less). A 2nd mortgage may also require a "balloon" payment at the
end of the repayment period. This is a great tip though!: the interest paid on a second
is tax deductible in most circumstances!
Primary types of second mortgages:
Home equity loan - This is the traditional type
of second mortgage. There is a 1 time disbursement of the loan funds followed by a period
of regular monthly payments and a fixed interest rate. Known as refinancing.
Home equity loans are often used to consolidate debts, redecorate home,
fund a university education, purchase a new car or most anything that requires a large amount
of money. Line of credit - This type of second mortgage is very different from a home equity
loan. With a line of credit, you don't receive a large check for the full amount up front.
You may never even borrow any actual money from it at all! The interest and payment on a
line of credit can and does change periodically. The interest is typically related to the
standard rate. The actual interest rate will be the standard base rate+ a certain number
of percentage points. 'remortgage' refinancing 2nd mortgage.
e.g. your loan specifies that you will pay the base rate + 5%. If the
base rate is currently 6.5%, the interest rate on your loan will be 11.5%. The interest
rates will be evaluated periodically, and if the base rate has changed, your interest rate
will change along with it. Of course your monthly payment will also change accordingly.
A line of credit 2nd Mortgage is just that: an amount of money that you
can borrow at a future date as needed. This amount is available to you all at once or in
several small disbursements spread over many years.
For example, you apply for and get approved for a £50,000 line of
credit (secured by a 2nd mortgage on your home). You can borrow the entire £50,000
at one time. Alternatively, you can wait a few months and borrow £20,000 fora new
car. A few months later you can borrow £6,000 to add a room to your house. Later still,
you can borrow another £3,000 to pay off a credit card bill. So far you will have
borrowed £29,000, meaning that you have
£21,000 left on your line of credit that you can borrow later ifyou need to.
Conclusion
Second mortgages allow homeowners to tap the equity in their homes to purchase
expensive items, pay of debts, or almost anything else.
Home equity loans are usually used to fund a present need while lines of
credit are often for use at some time in the future. It is very important that you use a
second mortgage wisely because if you get into financial trouble you can potentially lose
your own home. But if used properly, a 2nd mortgage can help you enjoy a better lifestyle,
now and in the future |
BUYMEAHOUSE.COM