Lower Interest Loans

Second Mortgage Loans
(Types) (Qualifying) (Costs)

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A second mortgage is a loan that is taken out on property that already has a first mortgage against it. It doesn't change the terms of the existing first mortgage. Second mortgages are different from first mortgages in various ways. For example, they often carry a higher interest rate, and their term is usually for a shorter period of time, often 15 years or less. You may also have to pay a large single payment at the end of the loan term that is commonly known as a balloon payment.

A second mortgage can make it easier for you to qualify for a first mortgage when buying a home. For example, a first mortgage holder may be willing to lend 65% of the value of the home you want to purchase, but you only have a 20% down payment in cash. You can use a second mortgage to make up the 15% difference. The interest portion of your second mortgage payments may be tax deductible up to the value of your home.

Second Mortgage Types:

Typically second mortgages fall into two categories:

· Equity seconds are second mortgages that use the equity you have in your home as the basis for lending you the money. Most lenders require an appraisal to establish how much your house is worth to determine what the equity value is. When you borrow an equity second you often get a better rate of interest because the equity in your house is used as security for the money borrowed.

· Over-equity seconds are second mortgages where the amount borrowed is over and above the value of your house. Over-equity seconds are commonly known as "125's" or "115's" because you are borrowing 125% or 115% its value. An appraisal may or may not be required depending on the amount of money you need to borrow. An over-equity second mortgage is sometimes a way to get a loan when a personal loan may have not been possible.

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Traditionally, second mortgage loans are given with a fixed loan amount and a preset repayment schedule. A variety of payment options are offered including interest-only payments or annual payments. These options can keep your immediate payments down and defer the costs of the second mortgage. In time your property should appreciate in value and at a later date you may want to refinance and consolidate both the first and second mortgages at a lower interest rate.

Qualifying For A Second Mortgage:

When assessing a second mortgage application, lenders look at both your ability and willingness to repay the loan. Your ability to repay the mortgage is determined by verifying your current employment and your total income. Many lenders prefer that you have been working for the same company for at least two years that you have been working in the same line of work for a number of years. This indicates your employment stability. Your proposed monthly payment will be compared to your monthly income to determine if you can afford the payments.

Your willingness to repay is determined by your credit record and how reliably you paid back previous loans. There are no set rules and each application is handled on an individual basis.

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Loan Costs:

Most companies charge a fee for lending you money. The fee is usually a percentage of the loan and is often referred to as 'points.' One point is equal to one percent of the amount you borrow. For example, if you borrowed $10,000 with a fee of eight points, you would pay $800 in 'points.' The number of point's charged by lenders varies, so it's a good idea to shop around. Many states limit the amount of fees a mortgage company may charge on a second mortgage loan. Be sure to get the amount of the fee in writing before you take the loan.