Second Mortgage Home Loan
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A second mortgage home loan is usually referred to as a home equity loan or line of credit that can provide a homeowner with a large amount of cash for any reason. These loans typically have lower interest rates and offer additional tax benefits for the homeowner. At the same time, this lending requires that the property itself be pledged as security for the debt. However, the house is put at risk if the borrower is late or cannot make the monthly payments. Some second mortgage home loans can allow for a final (balloon payment) which lowers the monthly payment amounts.
If the borrower sells the home, they must first pay off the first mortgage, then payoff the second. A second mortgage home loan typically is reserved for homeowners who desire a fixed interest rate, need a lump sum, and want to make regular amortized payments monthly. Some second mortgage home loans may extend for as long as 15-20 years, other may be shorter term in nature. Discussing the purpose of this lending with a counselor will determine which type of lending is best and how long repayment should be. It is important to get advice and help from professionals, but especially to get God's counsel. "Counsel is mine, and sound wisdom: I am understanding; I have strength" (Proverbs 8:14).
Most lenders will charge a variety of fees for originating the equity loan. Parts of these fees are called "points". One point is equal to one percent of the amount borrowed. For example; a homeowner taking out $50,000 would pay a $500 point fee. The number of points a lending institution or mortgage company charges will vary. It is a good idea for a homeowner to shop around before applying. Second mortgage home loan fees can vary substantially between lender, as well as the interest rates offered.
Many states have regulations that limit the amount a lender can charge a homeowner for this type of lending. It is advised that a borrower check with their state's consumer protection office or banking commissioner to discover the limit. Interest rates for second mortgage home loans are determined by the borrower's credit score and the amount of equity in the property. For example; if a borrower has a high credit score and has $50,000 in equity in their house, but requests a second mortgage home loan of only $25,000, they are sure to get a good interest rate. It is advised that homeowners know their credit bureau scores before shopping around for rates.
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