9 May 2008
Second mortgage loans can be an excellent way to get additional investment capital by using one of you biggest assets... read full story
28 March 2008
Second mortgage loans will become harder to justify now that economic forecaster BIS Shrapnel has predicted that house prices could rise by up to 40 per cent within the next five years... read full story
Do you want to get additional financing for your credit card payments or for your home renovation? If you do, then a second mortgage loan may be a good option. Second mortgage loans are secured loans that are subordinate to a prior loan on the same property. This means that second mortgage loans do not have priority on your home in case of loan defaults. The first mortgage has priority over your home and would be paid first before any funds go to the second mortgage.
There are two main kinds of second mortgage loans. These are fixed rate mortgages and home equity line of credit.
Fixed rate second mortgage loans. Fixed rate second mortgage loans have fixed interest rates and fixed loan terms. Some of the common types of fixed rate second mortgage loans include: 30-year fixed rate mortgages, 15-year fixed rate mortgages, and biweekly mortgages. 30-year fixed rate second mortgage loans usually have the lowest monthly payments and have a specific monthly payment schedule. 15-year fixed rate second mortgage loans enable you to own a house in half the time and at a lesser accumulated interest than a 30-year fixed rate mortgage. The time frame of 15-year fixed rate mortgages also becomes shorter through higher monthly payments. Bi-weekly second mortgage loans have a shorter term by requiring a payment of half the monthly amount every two weeks. Bi-weekly payments also add to the annual amount of payment and enable you to make 13 monthly payments or 26 biweekly payments each year. The decreased loan term of bi-weekly mortgages significantly reduces the accumulated interest of the loan. Some biweekly second mortgage policies also allow you to change to a 30-year fixed rate term without any loss on your part.
Home equity line of credit. This kind of second mortgage loans has fixed interest rates for a specific term that is adjusted for the remainder of the loan. The adjustment is determined by changes in a pre-selected market index and is enforced on a fixed schedule. Some common market indices used for home equity line of credit mortgages include: Treasury Bills (T-Bills), Cost of Funds Index (COFI), Certificate of Deposit (CD), and London Inter-Bank Offered Rate (LIBOR).
Second mortgage loans are ideal sources of financing during periods of minimal cash flow. They are commonly used for credit card payments, home renovations, debt consolidation, and buying new homes. The amount of second mortgage loans is determined by the equity of your home. Equity is calculated by the difference between the total amount of loans on your home and its value.
The primary drawback of second mortgages lies in the fact that your home serves as the collateral of the loan. This entails some risk especially when you are unable to pay off earlier loans. You must carefully consider how you intend to use the funds from a second mortgage loan and decide whether it is worth the risk of losing your home.
Second mortgage loans also have relatively higher rates than other mortgages. This drawback is caused by the second mortgage being subordinate to an earlier loan on your home. As a result second mortgage loans are riskier and entail higher rates.
