If you already have a mortgage and want to get access to money without refinancing your existing loan, you will need a 2nd mortgage. Getting approved for a 2nd mortgage loan is often more difficult than getting approved to refinance your first mortgage. Unfortunately the default rates on second mortgages are much higher than 1st mortgages, so lenders have started charging a higher interest rate.
Most people take out a 2nd mortgage to finance home improvement projects, but some borrowers still use them for consolidating credit card bills and adjustable rate loans. Whatever you need a 2nd loan for, we are the company to help you meet your needs while staying within your budget.
Getting a second mortgage on your home can make a great deal of financial sense. Let's take a closer look at second mortgages, why they are becoming more popular again, and why they may get even more popular when the Federal Reserve decides to hike rates. A 2nd mortgage loan on your home is taken out so that you can tap the equity in your property. If you have been making payments for a few years, and/or the property has increased in value, you should have at least $20,000 or more in equity in the home.
They need the money for something! The most common reasons that people take out 2nd mortgages are:
Some of these reasons may be better than others. While paying off high interest credit cards can make sense, you need to be very careful to not run up your credit cards again. However, at least the interest that you are paying for that debt will usually be tax deductible with a second mortgage.
Also, if you are doing home improvements, you should be sure that you are making improvements that will pay you back when you sell the home. Remember that you are paying interest on that 2nd mortgage each month, so ideally you want your home improvements to more than pay the interest you have paid when you sell.
Another danger with some 2nd mortgages is that the interest rate varies. With a HELOC, you are paying a variable interest rate that can adjust every few months. And those payments are interest only. When the draw period ends after 10 years, you will then be paying both interest and principal.
One might think that there would be fewer mortgages taken out when the Fed decides to increase interest rates. Not necessarily. Remember that when interest rates are increased, the cost of borrowing money increases for everything. One of the first types of credit that will get more expensive is unsecured debt – credit cards.
When the Fed increases rates, credit card interest rates will go up, some as high as 29%! Meanwhile, the interest rates on mortgages may go up only a ½ a point or a point at most. So, you can expect to see more interest in taking out second mortgages because that will still be a much lower interest loan than any credit card.
Also, when interest rates are raised, it can hurt some stock and bond investments, depending upon the exact product involved. Some people may want to take out second mortgages and invest in other things, such as real estate.
You always need to think about what you are going to use the money for, when you are borrowing money out of your primary residence. If that money is wasted, you are stuck paying another mortgage for years. Ideally, you want to use the money for an investment that is going to pay you back, such as investing in real estate or a home improvement.
Also, you need to think about which type of second mortgage you want. The advantage of a home equity loan is that you will get a large lump of cash so that you get everything at one time. However, remember that if you pull all of that money out at once, you must pay interest on the whole amount.
A HELOC allows you to take money out of your home as you need it. You do not even have to take all of the money out, but you can do so if you like. Taking out a second mortgage on your property is something that can make sense but must be done with care. Too many homeowners took out home equity during the real estate boom. When the market tanked, they no longer could afford to make their payments. Many of them lost their home. However, once again, taking out home equity can make sense in the right circumstances, and there is no question that as interest rates rise, more people will probably decide to do this.
2nd Mortgage Lenders are hard to find these days. Even though the demand for second mortgages has increased, the available 2nd loan programs have decreased dramatically in recent years.
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