Home Equity Loans – second mortgage

Lee Traupel asked:


It is important to note that there is no real difference between home equity loans and the second mortgage. A home equity loan is commonly referred as a second mortgage financing in most states throughout the United States.

A second mortgage financing package allows you to tap into the equity available in your home. It is done without any refinancing of the first mortgage and hence it is an additional source to get money when needed. If you need cash in a lump sum that too in a lesser time and at a low interest rate then second mortgage will be your automatic choice.

A first mortgage loan and second mortgage loan are two entirely different kinds of loans. The first mortgage is essentially the loan you take to buy a home. The amount applied as first mortgage loan is very high and the interest rates are fixed. After making a bulk payment as down payment you will have to pay the remaining amount in installments – the bank fixes the installments period on the front end of the contract.

A second mortgage is the loan taken against your equity that is secured against the loan. It is usually taken when a certain amount of money is needed in bulk and on an urgent basis. You and your creditor fix the mode of repayment and you may pay it back in installments or as a lump sum in most cases.

The second mortgage is taken when you need a certain amount of money in bulk and for an immediate need. Some of the reasons for applying for home equity loans are:

• For college tuition

• Paying of credit card bills

• For a vacation

• Other debt consolidations

• Emergency needs

All kinds of loans can be consolidated through the process of debt consolidation. The interest rates in the case of first mortgage are lower than the interest rate applied in second mortgage. Since the amount of loan in first mortgage is higher and the payment period is longer, the interest rate is lower – a second mortgage is just the opposite, with higher interest rates and a shorter pay off period in most cases.



ROYAL

Joseph Kenny asked:


When you need the cash out of the equity of your home you may wonder which one is better for you – a cash out mortgage or a home equity loan. The truth is that both have their advantages – but probably one will be better for your situation than the other. This will mean that you need to know a little about each in order to make up your mind. Here are some differences between the two.

A cash out mortgage will involve refinancing your first mortgage. This could be a great way to go, especially if you can get interest rates on the refinance that are at least one percent (two percent is to be preferred) lower than your present mortgage rates. So not only could you get the equity you want, but also you will save thousands of dollars by getting better interest rates, too.

You get the equity you want in a lump sum when your cash out mortgage is approved. All you need to do is to refinance for the amount of the mortgage that is still outstanding, and add the amount of cash you want from your equity. You will want to watch and make sure that you do not refinance for an amount equal to 80% of the value of your house – that includes the equity, as well. The reason for this is simple, you want to make sure that 20% of the value of your home is left intact so that you do not need to pay the Private Mortgage Insurance. This could add thousands of dollars each year to your payments.

You can enjoy further savings if you decide to shorten the term length, too. If you make the remainder of the refinanced loan to be about 5 years less than what you have now, you could literally save tens of thousands of dollars more over the life of the mortgage.

A home equity loan is another way to get to the cash in your equity that you want. A home equity loan is a second mortgage, and you may be able to get it as either an adjustable rate mortgage or a fixed rate mortgage. While it obviously does not require you to refinance your first mortgage, it will give you a new monthly payment – and the cash you want. As a second mortgage, there will also be closing costs and other fees – with the possible exception of going through your present lender.

The interest rate will be higher than on a first mortgage, when you get a home equity loan. The interest rate, as well as the amount you can borrow, will depend mostly on your credit rating, and your ability to repay the loan. Make sure your credit report is accurate before you apply. If there are inaccuracies on the report it can hurt you and give you higher interest rates than you might have otherwise, or even cause your home equity loan to be rejected.

Before you agree to either a home equity loan or a cash out mortgage, you will want to shop around to find the best deal. It will take some time to do it right – but you are the one who will benefit from the savings. Check the various features, such as the interest rate, the fees, and the terms of repayment – including the monthly payments.

The choice is now yours. It can basically be summed up as – do you want to refinance your existing mortgage, or get a second mortgage? Both have their benefits, but only you can decide which one will work best for you.



MITCH

mayuresh sawant asked:


A no income verification home equity loan is a second mortgage loan that does not require you to provide income documentation to qualify for the loan. This type of loan is great for homeowners who need a home equity loan but have hard to document income.

The majority of borrowers with hard to document income are either self-employed or commission based employees. Consumers who fall under these categories may have high income but have a lot of business related deductions that they write off on their taxes. This is good on the one hand as it reduces the taxable income and thus the amount of taxes owed, however, when it comes to getting a home loan it can hurt as most lenders use the average of your last 2 years taxable net income (the amount left after all of your deductions) to determine your income figure for qualifying purposes. This may cause you to have a debt to income ratio problem if you have a high debt load and thus keep you from qualifying for the loan. With a no income verification home equity loan, however, your gross income can be used for qualifying purposes as opposed to the net income.

In order to qualify for a no income verification home equity loan you will, in most cases, need good credit and a high credit score. Expect to pay a higher rate for this type of loan as opposed to a traditional loan in which you have to document your income. Also, even though a no income verification loan does not require you to document your income, some lenders may require that you have a certain dollar value of assets on hand which must be verified. Not all lenders have this requirement though – some lenders offer a program called NINA which stands for “no income no assets” meaning you do not have to document either. Loan guidelines and rates vary from lender to lender so it is a good idea to shop around to increase your chances of getting the best deal available to you.



PAUL

Brian G asked:


My wage is approximately 55% than my wife’s
This will be our 2nd home
With our first home, I am the only one on our 1st loan; we co-signed for the second loan (which represents our equity line and)
We both have comparable credit scores
Also, should mention that one of our homes is an investment home/rental property
And with this question, wondering what the pro’s and con’s of each scenario would be. (Me on the loan alone, or both of us on the loan)
Thank you

TOMAS

Josh Spaulding asked:


A second mortgage, or a home equity loan, is a good option if you’ve got climbing debt and some equity built up in your home. Taking out a home equity loan or a home equity line of credit may be a viable solution for you, but only if you find the right second mortgage interest rate.

You can use the funds from your second mortgage or line or credit in order to pay off debt, do home renovations or consolidate your bills. However, if you’re using it to pay off debt and you don’t do anything to adjust the way that you have been spending money then you’ll end up overspent again in just a few years. Don’t think of a second mortgage as a band-aid to a bad spending habit. Take out the second mortgage but also start using a family budget and control frivolous spending.

That being said, getting a good second mortgage interest rate is definitely possible even in today’s market where interest rates are starting to climb. Even with the increases, they are still lower than they were ten to fifteen years ago. If you have an older home, it’s still a good time to take advantage of the equity built up in your home.

Getting a good second mortgage interest rate is easier than applying for your first mortgage. With second mortgages, there isn’t quite as much paperwork, or as much time to wait for approval. Since you have the collateral of your home you represent a lower risk to the lending institution.

There are two types of second mortgages to choose from: the second mortgage loan and the second mortgage line of credit. Your second mortgage loan acts a lot like your first mortgage. You receive a lump sum of money. The second mortgage has lower closing costs than the first, but you are also paying a higher interest rate with the second mortgage.

The second mortgage line of credit acts like a credit card with a standard credit limit, but a line of credit has a variable rate. The interest will change depending on the month, which can be really great when interest rates are low like they have been lately, but difficult if they are high. You can use your line of credit as long as you have funds, but there is a cap to how much you can spend. At a certain period of time, 5, 10 or 20 years in the future, you won’t be able to borrow on the line of credit any longer and you’ll have to start making standard monthly payments. Up until that point, you can pay off as much or as little as you’d like to each month.

Just like with your first mortgage, you’ll want to shop around to get the best second mortgage interest rate. Determine whether a loan or line of credit would be best for you, and then take steps to improve your overall financial picture by using the equity in your home.



ELTON

Crystal Mate asked:


In a November, 2007 report, the Canadian Association of Accredited Mortgage Professionals (CAAMP) stated that in the previous 12 months, 17% of mortgage holders took out home equity loans or increased their mortgage. The average equity loan was $35,400.

What are people doing with all this money? Paying down debts, sending the kids to school, investing in their homes – there are many possible answers to that question. If you’ve ever considered tapping into your home’s equity, the following FAQs can help you decide whether home equity loans are the right strategy for you.

What Are Home Equity Loans?

Home equity is the difference between the market value of your home and what you still owe on the mortgage. So if your house is valued at $300,000 and you still have $260,000 outstanding on your mortgage, your equity would be $40,000.

Home equity loans enable you to borrow against that equity. These loans are also known as second mortgages because they are a second loan (the primary mortgage being the first) that uses your house as collateral.

How Much Can You Borrow?

With most home equity loans you can borrow anywhere up to 85% of the amount of your home equity. For the case above, with $40,000 in equity, the homeowner could borrow $34,000.

Some lenders have more generous options, even offering to lend 100% of the amount of equity in your home.

How is a Home Equity Line of Credit Different?

A home equity line of credit (HELOC) is much the same as a standard line of credit, but it uses your home’s equity for security. With a HELOC you can typically borrow up to 90% of your home’s equity. With $40,000 in equity, you could obtain a HELOC for $36,000.

With a HELOC, you do not necessarily have to use all of the credit at once. You can use it as needed and pay back what you borrow, just like a standard line of credit.

On the other hand, home equity loans are one-time, lump sum loan. If you need more money, you’ll need another loan.

The general guideline is that a HELOC is best for those who need access to varying amounts of money for ongoing expenses, whereas a home equity loan is better suited to those needing a specific amount for one large expense, like a home renovation.

What About Interest Rates?

Home equity loans typically have fixed interest rates, while HELOC rates are variable. The interest rates for both are typically pegged to an institution’s prime rate, and are often significantly lower than those charged for vehicle loans, credit cards and personal loans.

What is Mortgage Refinancing?

With refinancing, you pay off your existing mortgage and obtain a second mortgage for a lower interest rate. With a “cash-out” mortgage or refinance you can borrow more than what you owe on your mortgage. You can then take the extra money and use it for expenses like tuition, home improvements and so on. Refinancing may include costs for mortgage fees and prepayment penalties.

What are the Pros and Cons?

On the plus side, home equity loans provide low-cost credit for important expenses. In extreme cases, the risks are that the home market slows and you end up owing more than the value of your home, or that you overspend and default, which means the loss of your home.

For many people the pros outweigh the cons. To be sure if a HELOC or loan is right for you, it is best to consult with a mortgage professional.



ERICH

Joseph Kenny asked:


There are some alternatives available to the homeowner who needs financial help but does not want to refinance their present mortgage. There are however, at least two main options if some sort of equity loan is desired. You can obtain an equity credit line or a second mortgage loan and there are specific advantages and disadvantages with each one. Money can be saved over time if you take time to choose the loan that best fits your needs. Whatever you decide you will need to know the exact reason you want to borrow and the amount you need to make the loan for.

One of these loan options could be just the right thing to help solve your financial problem. You need to take a close look at both types of loan in order to see which one will give you the best type of service.

The most common form of equity credit is the Home Equity Line of Credit and this option gives the borrower the greatest amount of flexibility. If you want to do much needed repairs or renovations to your home, the best way to make this happen is to use the equity available in a loan that contains an equity line of credit. An equity credit line often comes with a debit card option that allows you to access more money when it is needed. Home improvements can often be estimated to be less expensive than they end up being, so the ability to draw on funds from the equity on your home is a very convenient option of a home equity credit line.

There are some disadvantages of the Home Equity Line of Credit. There could be a higher variable interest rate than with a second mortgage. The lender could make an adjustment in the credit rate at any time because the rates are variable and the changed interest rates could result in higher monthly payments. The interest is not tax deductible, so there are no tax advantages to HELOCs.

There are some definite advantages to a second mortgage. You may choose this option over the Equity line of credit. The interest rates on second mortgage loans are usually fixed rates and this is the main difference between the second mortgage and the equity line of credit. The second mortgage will allow you to borrow a fixed amount instead of having an open account from which to access funds and possibly put yourself into debt. The second mortgage loan can be used as a way to get out of debt. It can be used to consolidate outstanding debts and bring it all under one low monthly payment. You can also use the interest on a second mortgage as a tax deduction.

The biggest risk you encounter with a home equity loan is the fact that you are using your home as collateral for the loan. This is to protect the lender in the event that you fail to meet your loan payment requirements. The decision could be made to foreclose and you could end up loosing your home. Be sure you know just what is at risk when you take out a home equity loan of any type.



COURTNEY

Prerna Joneja asked:


Home equity loan can be a difficult concept for the people who have never dealt with home ownership earlier. So, we define equity as the financial value of a property or business beyond any amounts payable on mortgages, liens, claims, etc. In short, home equity is how many houses the person has earned.

Equity is basically the difference between the market value of a property and the claims held against it. It is the difference between the price for which a property could be sold and the total debts registered against it. For example, if your house is worth $150,000 and you owe $110,000 then your equity is $ 40,000. Then, you get home equity loan depending on the credit and many other factors for $40,000 that you have built up in equity.

There are two types of Home Equity Loan:

Standard Home Equity Loan

Home Equity Line of Credit

Standard Home Equity Loan is the loan that is assured by your home or is secured by the equity in a home. This type is a better option if you need a large amount of loan and for long term.

Standard home equity loan is also known as Second Mortgage or equity loan. Home equity loan can help people pay off their big interest rates, non tax-deductible customer’s debt or meet some other short term needs.

A standard home equity loan is a closed-end loan that can have a fixed term, a fixed rate, and fixed monthly payments. It can carry a variable finance charge rate that switches with a federal interest rate. The amount of the loan is usually made available in a lump sum.

Home Equity Line of Credit is a loan option if you need a smaller amount of loan and for short term. This loan type provides you an option of withdrawing money from an equity account when you need it. The home equity line of credit is an “on demand” source of funds that a borrower can access and pay back as needed.

This type of loan has fluctuating rate of interest. The borrower has to only pay the interest if he carries a balance because this line of credit are essentially a revolving line of credit, like a credit card but with a much lower rate because the line of credit is secured by your home. The borrower can tap the credit line simply by writing a check, and pay back the loan as quickly or as slowly as the borrower like, as long as he meets the minimum payment each month.

Benefits of Home Equity Loan are:

Home Equity loan can be the best option if you need to repair or reconstruct your home for debt consolidation or for medical or educational expenses.

It can be used to get rid of credit card debts.

It can be used to meet your educational loans.

It can be used for investment in other real estate.

It can be used to pay off your medical debt.

It can be used to refinance your other debt.

It can be used for home improvement.

It can be used for some major purchases and expenses.

It can be used for debt consolidation.

Home Equity Loan can be used for home improvement projects because home improvement can be costly and paying that cost might be difficult. Home equity loan provides good interest rates.

Studying in a college has become very expensive these days. Home equity loan can also be used for paying college expenses. This type of loan helps people who have financial problems so that they can afford the college expenses.

It does not matter what is your decision but whenever you take a home equity loan it should be taken from a trusted and well reputed lender. As a whole, home equity loan is a better option while taking loan because it is beneficial in all aspects.



KIM

Alan Lim asked:


Known also as a second mortgage, a home equity loan basically allows homeowners to get some cash by leveraging on their home equity. By second mortgage this means that you are replacing your existing loan and secure it by the same asset which, in this case, is your home.

Home equity loan refinancing may be considered risky for some. It does take some risk, considering how you are borrowing against your home. However, if you plan it out well and go for the right timing, it may solve a wide range of your financial problems.

Home equity loan and Line of credit

As far as equity loans are concerned, you can choose from getting a second mortgage or a line of credit. The choice will depend on how you plan to use your money and what your goals are. The former offers you a lump sum with fixed interest that you can repay in installments of 10 to 20 years. This can prove excellent for single large expenses such as home renovation. Line of credit, on the other hand, is virtually like a credit card where you are pre-approved of a certain spending limit and you can withdraw cash at anytime and be imposed of the current interest rate.

A home equity loan is undeniably an easy source of cash for homeowners. Interest rates on home equity may not always be as low as that of your first mortgage, but they are usually only half as much as that charged on your credit card or personal loan. Consolidating your debts via home equity will give you some extra savings on hand. You can even collect what you save up monthly to pay part of your principal to lessen your mortgage burden. Equity mortgages are also convenient since you only need to make one payment every month. You save time, and you save yourself the worry of meeting due dates.

Another attractive benefit that you can get out of a home equity loan is based on that fact that this type of loan is tax deductible. Many people go for equity mortgage to pay for major purchases, trips and other consumer goods for its tax deductibility.

Getting a home equity loan should not be taken as an easy way out for those who have fallen into the cycle of spending and borrowing – those that make holes for themselves to go deeper into debt. Though attractive as a concept, an equity mortgage should only be done for the right reasons. Though a home equity tool can equip you of a great tool for financial stability, know that it also carries a lot of risks with it. As in all mortgages with homes as collateral, you may run the risk of losing your greatest asset if you do not manage your debt properly. Take note that some terms require you to pay lump sum or balloon payments towards the end of your mortgage term. Do not fall into the lure of easy money with equity loans, weigh things beforehand and plan accordingly.



NORMAND

Grateful Believer asked:


Ok I’ll try to make this as short as possible (if it’s even possible)…

We have a first and a second mortgage on our home. I had developed somewhat of a friendship (via phone) with our broker over the years. He had done a 2 or 3 loans for me prior to the one’s I currently have. When we went into doing a good size remodel he did a 30 year fixed mortgage loan that was killing me financially during construction. So, during the end of construction May 05′ we refinanced into a Negative AM Loan and due to needing more $ to finish our project we took out a second in the amount of $25,000 ($20,0000 was what our contractor told us we needed for completion). The plan was that a Negative AM would give us a little extra cash if we needed it for the finishing touches. With this loan I could choose month to month to either make a Neg AM minimum payment, interest only payment, 30 year fixed or 15 year fixed payment. After a year we would refinance the 1st and 2nd into 1.

Well, I had called our broker 3-4 times in the months following the signing of papers concerning when the payment for the 2nd was due and for how much. 1st contact was about 1 month after completion of the loan to let him know I hadn’t recieved a statement for the 2nd. He said it was on his desk and he hadn’t gotten to it but will soon. I called at least 3 more times over the next few months and was told the same thing during the 2nd and 3rd contact. Then by the 4th contact he said don’t worry about it just appreciate it now. I thought ok I guess we’ll just deal with it later (yes, I know that sounds stupid and why would someone do that right?) I didn’t really think much of it because like I said we had developed somewhat of a friendship over the years. (And NO not sexual, I have never met the man in person and I am MARRIED)

A year came and went, then a year and a half came. I called him sometime in January or February 07′ to asked him when we were going to refinance the loans. He said let’s do it. I started the process of submitting all the paperwork and he ordered an appraisal which we paid for out of our pocket. The result was that we had plenty of equity to qualify but due to our credit scores at the time (which weren’t to bad but not great) he advised us to wait because the interest rates were continuing to drop and he was confident that we could get a better interest rate if we were to wait a little longer. We both agreed.

Another year went by. In January 08′ I called him again to start the process of refinancing. Again, I submitted the paperwork and paid for another apprasial. I shared my concern with him regarding the news of foreclosures and it making it harder for me to get refinanced. I let him know I didn’t want to lose my home. He understood my concern but was still confident and advised me not to worry. He wanted us to somehow cut our credit card debt down by 50%. He suggested to borrow money from our family or friends. Well, needless to say that was not possible. I don’t have any rich family members or friends that would let me borrow 6 or $7,000. This was so I could manipulate the balance of my close to being maxed out credit cards. So, that’s how we left it. I was to try and get my credit cards down. That was in March. I called him and July to let him know I wanted to get it done. He asked me to call him back next week. I agreed but didn’t. Not on purpose, but at my job, the summer is crazy.

Coincidentally, while our economy is going down the crapper, I recieved a phone call from him a couple of days ago letting me know we needed to come up with some kind of plan, he said I needed to come up with atleast $15,000 in 30 days!!!! If I do that he will wait on the rest so I can continue to pay down my debts and refinance me later. He told me if I didn’t, we would have to sell our house because, at this time I still have enough equity to pay him off.

So, after this long story my question is… can he force us to sell our home? I have been loyal in paying my 1st on time without default. I don’t have a problem paying him back, I did borrow the money. It’s not like I’ve ignored the 2nd completely either. I have looked through my paperwork and it doesn’t have any payment address or who to make the payment out to. Can he just all of a sudden demand this money to be paid to him? Can he force my family out on the streets? For a $25,000 debt I had inquired about a number of times and a first that has no default against it.

ENRIQUE