According to Barry Donovan, a financial consultant and writer for Nationwide, “One of the most powerful cash vehicles driving our economy is the new and improved home equity loan.” If you haven’t put the equity in your home to work for you yet, you probably have a few questions about taking out a 2nd mortgage.
How do I get a second mortgage?
Just like any other reputable mortgage product, tapping into the equity on your house will involve your credit score, your income, and other consumer debt. The value of your home will also factor into the equation. Of course, you will have a more challenging time qualifying if you have bad credit or heavy debt.
How big of an equity loan can I get?
The availability of equity will be based on the loan to value ratio, which is the value of the loan against the fair market value of your home. So a loan of $80,000 on a $100,000 home has a loan to value ratio of 80 percent, which is the standard ratio. Only a select few lenders offer 125% second mortgages. This is a second mortgage that allows you to exceed the value of your property.
Can I get a 2nd Mortgage without having to refinance my 1st mortgage?
Although refinancing your home to cash out on the equity is still an option, it is no longer a necessity in getting a second mortgage. Banks will consider your combined loan to value ratio is lending you money against your equity without you necessarily needing to refinance.
What’s the difference between an equity line of credit and home equity loans?
A home equity line of credit is a revolving account based on the amount of equity available in your home. They have lower interest than credit cards and lower payments, but have a variable interest rate. Home equity loans are set at a fixed interest rate, but are not revolving accounts like the credit lines. The principal and interest do not change.
What are the benefits to a 2nd mortgage?
There are many benefits to a 2nd mortgage. Equity credit lines can be used for expenses rather than a credit card. Using a credit line in this manner will give you a much better interest rate. A home equity loan can be used for debt consolidation at a lower interest rate giving you overall savings on the interest as well as monthly savings. And of course, second mortgages can be used for home improvement and the interest on these loans is normally a tax deduction.
What are the costs involved in a 2nd mortgage loan?
Mortgage costs include credit reports, points, closing costs and sometimes appraisal fees. Frequently an appraisal won’t be necessary, but there may be other fees involved and you should be aware of which you will be expected to pay. You should also check to see if the loan has a pre-payment penalty and try to find a loan without one. If you have a variable rate, your payments may also change with the interest rate. You can check second mortgage rates on sites like Bankrate. There are many products available and a little bit of homework will help you find the one that’s right for you.
Rebecca is a respected writer and article contributor to the Desert Magazine.
Please visit these additional resource websites:
To get a free loan quote for a 2nd mortgage options for people with all types of credit, please check out Bad Credit Second Mortgages. If you need more loan advice about credit lines, take a look at the flexible programs offered for Home Equity Lines of Credit. For the latest interest rates for fixed rate home equity loans, please visit Second Mortgages Direct.
