Mortgage second

Finding the money you need to make those home improvements can lead to having to make some serious decisions. If you really want to make those home improvements, then you have basically two choices – either refinance a first mortgage, or get a second mortgage in order to get access to some of that equity.

While either choice could give you access to some cash for your project, only one choice will actually be better for you – depending on your circumstances. Here is what you need to know to make that decision.

You can get access to your cash by refinancing your first mortgage. If you find that you can get some better terms than what you already have, then this may be the way to go. Look for a lower interest rate that is about 1% or more lower than what you already have for a good deal.

Mortgage Insurance?

One thing that could help you decide would be if you are paying Private Mortgage Insurance, and now have more than 20% of the house’s value in equity. By refinancing, you could get access to your equity with a cash out mortgage, and drop your PMI at the same time. In order to drop the PMI, though, be sure that you do not refinance for more than 80% of the attained value of your home. This means that you need to leave 20% of your equity intact.

Get the security of fixed rates

Another possible reason to refinance might be to get away from an adjustable rate mortgage – if you have one. Many people are now seeing the danger of these mortgages. They are great when the financial times are good, but horrible enough to cost you your home when economic times go a little sour. By refinancing your first mortgage, and using your equity for your home improvement project, you can gain the financial stability you need.

Refinancing with either a first or a second mortgage could be not worth your time, though, if you are not planning on staying there very long. The costs of refinancing are significant, and will take the average person at least three to five years to start to see a positive return on their investment.

Options of Second Mortgage

A second mortgage will give you two options – either a home equity loan or a home equity line of credit (HELOC). Both of these will give you higher interest rates than on a first mortgage, and a second payment. Besides that, there are the same costs involved for the financing.

As a second mortgage, either one gives you the cash you need to beautify your home. Home improvements or repairs are tax deductible which means your actual rates are brought down some by the deduction. A HELOC will give you a greater flexibility since you draw out the money as needed (for a limited time), and only pay interest on the amount you use. So, if you are not sure you need the full amount of your equity, this method will save you some money, but be careful and be sure you understand how it will be amortized – and when.

Get the best mortgage deal

Refinancing or getting a second mortgage is a very common method of getting cash to fix up the home place. It also builds up the value in your home even more. Anytime you are thinking about either option, be sure to shop around getting several quotes, and then do a careful comparison of the fees (especially), as well as the interest rates.

The bottom line is that it depends on your own goals and financial situation as to which option may be better for you, but comparisons of quotes will let you know which option will best help you meet that goal.

By: Joseph Kenny

If you are a homeowner in need of an equity loan, but do not wish to refinance your existing mortgage, you have the choice of an equity line of credit or a second mortgage loan. Each option has advantages and disadvantages over the other. Here are several suggestions to help you decide which home equity loan type is right for you.

Home equity loans come in two flavors: second mortgage loans and home equity lines of credit. Depending on your reasons for borrowing and the amount you need for the loan, choosing the right home equity loan for your situation could save you thousands of dollars. Here are the pros and cons of both loan types.

Equity Lines of Credit

Choosing a Home Equity Line of Credit, or HELOC, gives you the greatest amount of flexibility. If you are using equity for renovations to your home, an equity line of credit offers the flexibility to make sure the job gets done. Home improvements and renovations rarely come in under budget; if you only planned for a fixed amount on your project, you could find yourself short when unforeseen circumstances arise. Equity lines of credit offer a debit card you can use for purchases just like a credit card that is tied to the equity in your home.

There are disadvantages to Home Equity Lines of Credit. These loans typically come with variable interest rates that are higher than comparable second mortgage loans. Because the loans come with variable rates the lender will adjust the interest rate and payment amount at regular intervals. This means your monthly payment will almost always go up when the lender resets the loan. Another disadvantage of this type of loan is the ease of access provided by the debit card. This ease of access could tempt you to spend more money than you had intended.

Second Mortgage Loans

Second mortgage loans have many advantages over equity lines of credit. These loans come with fixed interest rates and allow you to borrow a specific amount without the temptation to overspend. Second mortgage loans are ideal for homeowners that want to consolidate their bills into one low payment. When you take out a second mortgage for this reason, it is important to remember that debt consolidation does not eliminate your debts; it simply moves it around to make it easier for you to repay. You gain a tax advantage with home equity loans, the interest you pay on these loans can be deducted on your Federal Income tax.

There are risks associated with both varieties of home equity loans. Because home equity loans are secured by your property, if you fall behind on the payments your lenders could foreclose and take your home. The interest rate you qualify for on your home equity loan will be higher than the rate of your primary mortgage because this lender assumes more risk for the loan.
You can learn more about your second mortgage and home equity loan options by registering for a free mortgage guidebook.

By: Louie Latour

At times in life it may be necessary to come up with a sum of cash for unexpected expenses or even expenses that you might not be able to afford without a influx of cash. In these cases a second mortgage can come in quite handy. Before taking out a second mortgage; however, you should know how they work and the advantages and disadvantages of second mortgages.

Basically a second mortgage occurs when you take out another mortgage on top of the existing mortgage on your home. This type of loan is secured with the property for collateral. Of course, the first mortgage takes precedence in the event that you default on the loan. Any funds that are left would then be applied to the second mortgage.

Many people commonly use second mortgages for such expenses as home improvements, the purchase of a second or vacation home and to consolidate other debts with a lower interest rate. Of course, you may also be able to use the proceeds of your second mortgage for other options but you should always keep in mind that you are putting your home at risk for the purchase and be sure you can justify the risk for that purpose.

One of the major disadvantages of a second mortgage is that the interest rate will usually be higher than your first mortgage. Lenders insist on higher interest rates because they understand they won’t be the first in line in the event that you default on the loan and they need to protect their assets, so they do this with higher interest rates. Of course, the rates are typically lower than what you could obtain with any other type of loan and much lower than credit cards.

You should also be aware that you’ll typically be responsible for some fairly significant closing costs on second mortgages. If you can’t pay those fees, you may not be able to work out a second mortgage on your property.

Due to the amount of risk involved you need to be absolutely sure you have no other option before taking out such a loan. After all, you are risking the loss of your home, so you should be sure you’re willing to take the risk as well as be relatively sure you can cover the additional loan payments.

If you do decide a second mortgage is the right option for you, be sure to shop around for rates before taking the first one offered to you. You may be able to get better terms or a lower interest rate by shopping around.

Always look over the terms to be sure of what you’re agreeing to pay. One of the most typical arrangements with many second mortgage lenders is to tie what is known as voluntary insurance in with your mortgage. Depending on the level of your current insurance policy, you may not need this additional coverage and cost. In addition, always make sure you know how much you’re paying for closing costs, such as application fees, points to get a lower interest rate and appraisal fees.

By: Joseph Kenny