Monday, February 8th, 2010
Many people think of a second mortgage as a fixed interest, lump sum loan. However, that is only one form of a second mortgage. A second mortgage is actually ANY secondary lien on your home–secured loan with your home pledged as collateral. Second mortgages are typically categorized as fixed mortgage rate home equity installment loans (HELs), also known as home equity loans, and home equity lines of credit (HELOCs) which are adjustable rate mortgages.
The Federal Reserve states that the home equity line of credit annual percentage rate (APR) is a variable rate loan based solely on a publicly available index (such as the prime rate published in the Wall Street Journal or a U.S. Treasury bill rate). The APR does not include points or other finance charges. The monthly payment amount will adjust as your loan balance and interest rate changes. Loan terms can be anywhere from 15 to 30 years.
HELOCs have a draw period, typically occurring in the first 10-15 years, with the remaining term on the loan referred to as the repayment period. During the draw period, you can draw out money on a revolving basis similar to a credit card without applying for a new loan, as long as the amount does not exceed the total amount of the original HELOC. During the repayment period you may be allowed to renew the credit line. If your plan does not allow renewals, you will not be able to borrow additional money once the draw period ends. Interest is paid only on the amount of equity you use.
A Home Equity Installment Loan (HEL) is a fixed mortgage rate loan, which means the annual percentage rate (APR) and monthly payment will stay the same for the life of your loan. The APR for a HEL takes into account the interest rate charged plus points and other finance charges. Loan terms can be anywhere from 5 to 30 years, but are typically 15 to 20 years. Unlike a HELOC, you get a lump sum for which you immediately start paying principal and interest. If you decide later that you need additional funds, mortgage refinancing or getting an additional loan with additional closing costs are your only options.
Which type of loan you choose depends on your financial needs. A HELOC may be best if you have a recurring need for money (e.g., home improvements or a home repair project that has anticipated additional expenses). The Security 2 fixed mortgage rates could lead much-needed aid is time consuming (for example, debt consolidation).
Tags: Adjustable, Comparison, equity:, jewelry?, Mortgages:, Versus
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Friday, January 15th, 2010
In the financial arena, many terms are used to explain what amounts to be the same thing. Mortgages are home loans and equity is the cash value in your home. One term that is used that sometimes causes confusion is second mortgages. No, this really isn’t an additional mortgage, rather it is a equity loan that works a bit differently from your home’s mortgage. Read on and I shall explain just how a second mortgage works.
When you purchase a home, the mortgage company puts a lien on your house. This means that if you default on your mortgage the mortgage company will be first one in line to get your home in the event of a foreclosure. Any other creditor with interest in your assets will be in a secondary position when it comes to having rights on your property.
In the case of a second mortgage, this type of loan is actually a home equity loan. It works this way: you have built up enough equity or cash value in your home and you decide to tap these funds for home repairs, renovations, or some other project even for your child’s college education. As far as the lender goes, they have a second lien on your property but only after the lien of the primary or first mortgage holder has been satisfied in the case of a default. Thus, a home equity loan or second mortgage is a bit riskier for the second lender therefore your interest rate will probably be two to three points higher than the going rate of a fixed rate mortgage at the time that you take out the second mortgage.
In many cases, consumers may find it beneficial simply to visit the primary mortgage company and do the home equity loan through them. In that case the mortgage company has the first and second liens on the property through both the first and second mortgage. Later, if you choose, you could refinance the two loans into one loan especially if a better rate can be realized. Your original lender would be happy to do this for you, but a competing lender may have a better rate, so shop around.
In either case you can gain tax deductions through the two loans as permitted by state and federal laws. Check with a real estate or tax accountant to determine how you can maximize your home loans to your full tax advantage.
Tags: equity:, Mortgages:, Second
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Friday, January 8th, 2010
Whether you need some extra cash to pay off some credit card debts, or to make some home improvements, home equity lines of credit or second mortgages can be great ways to get started.
Many people looking to borrow money often opt for home equity line of credit, or HELOCs, for short. They are a tempting first choice, because they can often give you the much needed cash at a low interest rate. Another advantage to taking out an HELOC, or a home equity line of credit, is that they may provide the borrower with a certain tax break, but you would need to verify this with your lender or accountant.
One drawback to HELOCs, however, is the fact that borrowers are expected to put their homes up as collateral. So, it is important that you think this decision through, before finalizing the loan, because you may be at risk of losing your home- and its equity- if you are late or cannot make your monthly payments. Finally, if you decide to sell your home, must HELOCs will require that you pay off the balance, before completing the sale.
You can also take out a second mortgage, if you need some cash. Like the HELOC, second mortgages usually pay out the loan in one sum, which makes it a convenient option. Second mortgages also have the added advantage of having set payments, at a fixed interest rate. Many companies will charge a lending fee, which will vary from company to company. These fees are usually based upon a percentage of the loan and are frequently referred to as ‘points.’ If one fee seems too high, don’t be afraid to shop around to find one which is better suited to your budget.
Remember, however, that adding a second mortgage to your home carries with it certain risks. Like with home equity lines of credit, you could lose your home, if you fall behind in the payments.
Tags: choose?, HELOCs, Mortgages:, Second
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