Second mortgages have become increasingly
popular over the years and especially home equity lines
of credit. Second mortgages are very advantageous for
homeowners who have a great rate on their 1st mortgage
and do not want to refinance that mortgage and lose the
interest rate that they have on that one. Second
Mortgages are also very common in piggyback, combo or
80/20 loans. Second Mortgages help to provide a way
around PMI and cheaper monthly mortgage payments.
Second mortgages can be used for many different reasons. A second mortgage can be used to consolidate debt, to avoid PMI insurance on a home purchase, to pay for
children's tuitions, to provide for a vacation, and for many other reasons. Consult a mortgage professional to see what options are available to you and to find out if you qualify for a second mortgage.
There are two types of Second Mortgage, Home Equity Loan and Home Equity Line of Credit (HELOC). A Home Equity Loan has a fixed interest rate for the entire loan term. A HELOC has an adjustable rate, usually base on the Prime Rate published on the Wall Street Journal.
Most people that take out a 2nd mortgage take out a loan up to, but generally not exceeding the appraised value of their home. Depending on what you needs are you may be able to take out a 2nd mortgage that actually exceeds the value of your home. While this is certainly not for everyone, it is helpful to know that the possibility exists.
Second mortgages are a useful way of obtaining 100% financing when a making a large down payment is not an option. Combo loans (often referred to as 80/20s or piggyback loans) allow the buyer obtain two mortgages: one for 80% of the loan amount, and a second mortgage covering the remaining loan amount. Expect rates on the second mortgage to be a few percent higher than the interest rate on the first mortgage. This option is also popular because it allows a larger tax deduction and requires no private mortgage insurance.
In many cases, a mortgage lender will use an automated system or a drive-by appraisal to determine your home's value. This will save you some money compared to the standard full-home appraisal that is usually required with a first mortgage.
Second mortgages can also be used by Seller's to help those with slow credit achieve higher Loan to Value.
If you are approaching the
Fannie Mae conforming loan limit, sometimes doing 2 loans will give you a lower combined interest rate. You can borrow on 1 loan for $417,000 and take a smaller 2nd mortgage for the difference.
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Information listed above is to be used for educational purposes only and is not guaranteed
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