A Second Mortgage Can Be a Source of Cash

second mortgage

The fact that you own a home tells lenders that you are taking steps in securing a strong financial future. However, even the best of homeowners can fall into financial hardships and need to tap into their home as a source of cash. A second mortgage can assist you in obtaining that cash. Home ownership comes with the benefit of using your home as security against funds borrowed from it. A 2nd mortgage is the agreement that you will be repaying this loan using your house as collateral. Historically, a second mortgage was considered disgraceful, however, now lenders are more prone to offer a second mortgage to homeowners that have fallen on hard times rather than face the possibility of them defaulting on their current mortgage commitment. A second mortgage may be just the thing the financial doctor ordered.

Second mortgage interest rates

second mortgage

Strong competitions between lenders have forced 2nd mortgage interest rates to be affordable. The interest on second mortgage loans is predominately in competition with the prime lending rate, and at times, once can get this type of loan below that rate. A second mortgage can also come in the form of a home equity line of credit, wherein you tap into the funds available for the purpose you need. Regardless of the scenario you choose, your property is considered collateral for repayment of the loan. To protect your house, be sure that your mortgage payments, both first and second are within your budget and do not cause a financial hardship as you can lose your house if payments are not made adequately and in a timely manner.

The Differences Between the Second Mortgage and First Mortgage

second mortgage

Second mortgages are secured on the same property as the first mortgage, however does not refinance the first mortgage. Second mortgages come in handy when attempting to finance home improvements, for debt consolidation purposes or as an alternative to refinancing. A second mortgage can help you to secure funding that would come otherwise with higher interest rates such as credit cards or personal loans. A second mortgage is based on the equity in the property and your credit score to determine the best interest rate and affordable payments. A loan such as a second mortgage takes considerably less time than get your home mortgage refinancing, which means your cash is available to you sooner.

Is a Second Mortgage Right for You?

second mortgage

There are several different ways to tap into your home's equity. Based on your credit and the reason for the loan, each of these choices will come with its own pro's and con's. One choice is a traditional second mortgage wherein you will receive a lump sum of cash with very specific repayment terms. Different from a 2nd mortgage, however, with the same results is a home equity loan. Again, you will be given a lump sum payment, with preset repayment terms. A third choice is a home equity line of credit. With a home equity line, you draw the cash you need when you need it. If you have not drawn any cash, there will be no payment. The payments you will have to render are based on the interest rate and the amount borrowed. Regardless of the type of loan, your property is being held as collateral until the loan is paid in full.

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