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Second Mortgages

Almost every homeowner in the country has a first mortgage on his or her home. Second mortgages are loans that are based on the equity the homeowner already has in their property. Equity is the difference between what you reasonably expect get if you sold the property called the "Fair Market Value" and what you owe on it.

Money obtained from second mortgages is typically used for home improvements, to pay for college educations, to consolidate other debts into a single payment, start a business, take an extended vacation, etc. However, second mortgages usually carry a higher interest rate than first mortgages and most of the time are for a shorter number of years. Where a typical first mortgage is 30 years, typical second mortgages are 10 to 15 years.

These loans have regular monthly payments just like the first mortgage. However, there is a special kind of second mortgage that has a very large final payment called a balloon payment. These loans provide low monthly payments in anticipation that both the value of the property and the borrower's income will increase before the large final payment is due so the property can be refinanced. They allow the borrower to buy more house they they can currently afford.

Another type of second mortgage exists called an equity line of credit loan. This loan has a specified credit limit as opposed to a specific loan amount. It works pretty much like a credit card. If your use the line of credit, you must repay it monthly according to a payment schedule. Typically the monthly payment is a percentage of the balance. The primary reason most people have for using an equity line of credit is that the interest you pay is tax deductible.

Second mortgages can make it possible for you to do things you otherwise would not be able to afford. Basically all it does is let you turn your largest fixed asset into cash whenever you need or want to pull some of the equity out of your property.

You should exercise caution about using second mortgages to pay ordinary expenses. You are putting your largest asset at risk when you borrow against your house. It doesn’t make sense to pay interest for 10 years to pay off a debt that would have been paid off in five years unless your are in serious financial trouble and could end up losing everything unless you reduce your overall monthly payments.

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Second Mortgages Almost every homeowner in the country has a first mortgage on his or her home. Second mortgages are loans that are based on the equity the homeowner already has in their property. Equity is the difference between what you reasonably expect get if you sold the property called the "Fair Market Value" and what you owe on it. Money obtained from second mortgages is typically used for home improvements, to pay for college educations, to consolidate other debts into a single payment, start a business, take an extended vacation, etc. However, second mortgages usually carry a higher interest rate than first mortgages and most of the time are for a shorter number of years. Where a typical first mortgage is 30 years, typical second mortgages are 10 to 15 years. These loans have regular monthly payments just like the first mortgage. However, there is a special kind of second mortgage that has a very large final payment called a balloon payment. These loans provide low monthly payments in anticipation that both the value of the property and the borrower's income will increase before the large final payment is due so the property can be refinanced. They allow the borrower to buy more house they they can currently afford. Another type of second mortgage exists called an equity line of credit loan. This loan has a specified credit limit as opposed to a specific loan amount. It works pretty much like a credit card. If your use the line of credit, you must repay it monthly according to a payment schedule. Typically the monthly payment is a percentage of the balance. The primary reason most people have for using an equity line of credit is that the interest you pay is tax deductible. Second mortgages can make it possible for you to do things you otherwise would not be able to afford. Basically all it does is let you turn your largest fixed asset into cash whenever you need or want to pull some of the equity out of your property. You should exercise caution about using second mortgages to pay ordinary expenses. You are putting your largest asset at risk when you borrow against your house. It doesn’t make sense to pay interest for 10 years to pay off a debt that would have been paid off in five years unless your are in serious financial trouble and could end up losing everything unless you reduce your overall monthly payments. [home] [category index page] [contact me]