| House Refinance Center |
| Second Mortgages Good For Emergencies |
| When To Get A Second Mortgage Taking out a second mortgage on your home is a good idea if you are facing unexpected emergencies. These are funeral expenses, medical bills, home repairs and renovations, and college tuition. Debt consolidation can be placed in this category but we have to look at the type of debt. The best use of a second mortgage is home renovations. Remodeling a kitchen can add as much as 75% of the amount spent. In other words if you spent $20,000 you add $15,000 in value to the house. Here is the breakdown of some major projects that will make good economic sense. These figures are from Remodeling Magazine 2009-2010 National Average Survey. Project: Cost Recouped Attic Bedroom 83.1% Minor kitchen remodel 78.3% Deck addition wood 80.6% Siding replacement vinyl 79.9% Window replacement 77.3% You would not get these returns on the purchase of a new sports car or a motor cycle. Therefore, spend the money wisely and remember that you are putting your house at risk. Your house is the collateral Understand that you are using your house as collateral when you get a second mortgage. So make sure the money is used for a real emergency and something frivolous or something done on the spur of the moment. If you fail to pay the second mortgage, the lien holder can foreclose on your house, just like the first mortgage holder. Perks of a second mortgage - tax deduction The interest on your second mortgage is tax deductible, just like the mortgage interest on your first. But do not take a second mortgage just for the write off. The money is readily available to you and the interest rate charged is lower than that on an unsecured loan. How big a second mortgage The bank will need an appraisal to determine how much they are willing to lend you. The amount of the first mortgage is deducted from the appraised value of the house, and that gives you a base figure to start from. For example if your house appraised for $400,000 and you owed the bank $300,000 on the first mortgage then you have $100,000 to start working with. For second mortgages many lenders are comfortable with a combined loan to value (CLTV) of 80%. In our example the maximum exposure will be $320,000 and the first mortgage already has $300,000 of that, so all that is left for the second is $20,000. If you find a lender that will allow a higher CLTV then you can get a larger second. Remember that a second mortgage should be considered as a last resort. As always shop around for the best rates and the best terms. prev: next: Home: Readers of this article also liked: Foreclosures: Squatters Rejoice In New Found... Stated Income Loans For Self Employed |
 | |  | |  | |  | |  | |  | |  | |  | |  | |  |
| How To Negotiate A Second Mortgage Getting a second mortgage is easy. However, getting the best rate and the greatest options in the mortgage can be a challenge. You must be prepared to do some legwork and some homework. Start with the internet. Make a list of 5 lenders in your area that offer second mortgages. You then have to start by comparing mortgage rates and the options being offered. Mortgage rates The mortgage rate for your second mortgage will be higher than the rate on your first mortgage. But it will be lower than a credit card rate or an unsecured loan rate. Your objective is to get a rate as close as possible to the rate on your first mortgage. At this stage of your homework, lenders will give you a range of rates. They will say " you can expect something in the neighborhood of 6.99% and 8.99%". They will not commit anything in writing yet. Lenders will need to see your credit report before they commit to you. Get a copy of your report from all three credit reporting agencies, Equifax, Experian and Trans Union. The credit score will be different. It's a long shot if they are all the same. Always ask the lender if they take just the highest, or if they average the three, or if they use the lowest. Find out which score will be used. You will also need an appraisal. Be prepared to pay for the appraisal. Think of this as the cost of doing business. The appraisal company should be one that is common to all your prospective lenders. Call the lenders and ask how old an appraisal has to be. Some might use an appraisal that is 30 days old, while others want the appraisal no older than 15 days. What you are trying to accomplish here is to avoid paying for the appraisal twice. You have your credit report, you have the appraisal, you know the range of rate, now you can ask for a second mortgage. The issue now is whether you should apply to all 5 lenders or narrow it down to 2. I prefer applying to just 2. The reason for this is that each time your credit file shows an inquiry your score goes down. If somehow you can get all 5 applications in one day, then the damage to your credit score will be minimal. Options in your second mortgage The best option to ask for in a second mortgage is the prepayment option. This option allows you to pay off the second mortgage at anytime without paying a penalty. Many lenders hate to give this option because when you pay the balance of the mortgage in full before the mortgage matures, the lender loses interest income. However you have to argue that by paying the mortgage early, the lender has that amount of money to lend to another borrower at a higher rate. In addition, the lender is reducing his risk and exposure. Another option you need is the ability to make biweekly payment instead of the traditional and popular, monthly payments. This option basically allows you to make one extra payment a year. This extra payment goes directly to the principal, and nothing to the interest. For example, if your monthly payment is $1,000 you pay $12,000 each year. With a biweekly payment you pay $500 every two week. This is 26 payments for a total of $13,000. As you can see, you are making an extra $1,000 in payments for the year. Don't be afraid to ask for what you want. What is the worse that can happen? The lender says no. In today's economic climate lenders are spending thousands of dollars to get qualified customers. When they get them they will not just let them walk away. prev: next: Home: Readers of this article also enjoyed: All 50 States Must Attack Foreclosure Fraud... Financial Reform: It Doesn't Go Far Enough Jumbo Loans Are Back |
| Second Mortgages In the good old days we had mortgages like, "100% financing" and "no money down". Many of these deals were accomplished with two mortgages, a first for 80% and a second for 20%. Today, lenders want solid equity. A second mortgage is a junior lien. It sits behind the first mortgage. If there is a default and subsequent foreclosure, the lender holding the second has to wait until the first is satisfied. There might not be much money left over. The foreclosure process is very expensive. For these reasons, lenders will seldom issue a second mortgage unless there is about 40% equity in the house. They will lend up to 20% of the appraised value of the house, and leave a buffer of about 20% just in case the borrower defaults. The mortgage rate on a second is 5% to 8% higher than on a first mortgage. So, the lender is getting a great return on his money. However, remember that a second mortgage is extremely risky, and this is the price you pay for someone taking a chance on you. prev: next: Home: |
calculators zero down mortgage second mortgage mortgage interest deduction mortgage servicing first time buyer financial reform fannie and freddie
FHA mortgage approval nonprofit brokers servicemembers stated income refinance calculator downpayment closing fees bank owned (REO)
Home Credit Foreclosure Refinance Hard money Interest only mortgage Loan modification Shortsale Reverse mortgage Strategic default