About Second Mortgages

Category : Mortgages

A second mortgage loan is similar to a first mortgage loan. To qualify for this loan, you'll need to contact a mortgage lender and submit an application. In turn, lenders review the request and determine whether you're an ideal candidate for a loan.

Several factors influence loan approval. For starters, you need adequate equity. A second mortgage home is often called a home equity loan because borrowers tap into their equity. Borrowers can use the funds for any purpose such as debt elimination, home renovations, tuition or wedding expenses.

There are two types of second mortgages. You can apply for a traditional second mortgage or home equity loan and acquire a one-time lump sum of cash. This option is ideal for borrowers who need access to immediate cash to meet a large expense. Second mortgages are also available as a line of credit. This revolving account is similar to a credit card, and borrowers can withdraw funds on an as-needed basis. The typical withdraw period on a line of credit is 10 years.

Second mortgages are beneficial because they give borrowers access to quick cash. Some people are fortunate enough to have a sizable savings account. When emergencies arise, they can tap into their personal savings and meet the expense. Other people aren't as fortunate, and they don't have cash to make needed home improvements or pay off debt. A second mortgage loan makes it possible for homeowners to access their equity without selling their property.

Although useful, second mortgages are risky. Because this type of loan creates a second lien, defaulting on the loan can result in foreclosure--even if you've paid your first mortgage on time. Additionally, second mortgage loans carry higher interest rates, which increase monthly payments. And like a first mortgage, a second mortgage involves mortgage-related fees. Depending on your lender, you'll pay an appraisal fee and closing costs.

Several mortgage lenders offer second mortgages. To get a good deal, shop around and compare different rates and terms. Contact your present mortgage lender and request a no-obligation quote. If you have a good payment history with your first lien holder, they may waive a few fees and offer you a low rate. Still, it doesn't hurt to contact a broker and request additional quotes. A new lender may offer a cheaper loan package.