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Second Mortgage or HELOC

Having a roof over your head is one of the person's primary needs. Your home is not just your castle, a place to shelter from the vanities of the world. If the place where you live is your own or will become your property after you pay off your mortgage loan, it has home equity. And if you have home equity available, you can get a second mortgage. What is a second mortgage?
A second mortgage is a loan secured against your home when you already have your first, original mortgage. Why is this type of loan called "second mortgage"?

This means that in case you default on your primary mortgage, your second mortgage will have less priority as compared to the first mortgage. And you will have to pay down your original mortgage first.
Taking a second mortgage is a big risk. In case you default on your first home loan, you risk losing your home. So, why would you want to risk your home? In general, people take out second mortgages when they need large amounts of money. But there can be several reasons for it.

  • Investing cash in business. When is taking a second mortgage for this purpose really worthwhile? If the business you decided to invest money in pays dividends and compensates for the 2nd mortgage interest rate you will have to pay.
  • Avoiding Private Mortgage Insurance. Second mortgage loan makes it possible, as it makes up for 20% of your home purchase price.
  • Home improvement.
  • Paying college tuition.
  • Buying a new car.
  • Paying off debts.
How much money will you be able to borrow with a second mortgage? It depends on your home equity.

Home equity is the difference between the current appraised value of your home and the amount of money you have paid towards your primary mortgage. You can get a loan of up to 125% of the appraised value.
As you understand, the rates and fees that second mortgage lenders charge are higher than those charged by first mortgage lenders. Seconds home loan lenders take greater risks when lending money. And to compensate for potential losses, they set higher rates and fees.
There are two major types of second mortgage: home equity loan (HEL) and home equity line of credit (HELOC). Both notions are synonymous to the second mortgage notion. Basically, HEL and HELOC are almost the same type of secured loans with a few differences.

Home equity loan comes with a fixed rate. HELOC has a variable rate. You can use HELOC mortgage as long as there are some funds. In fact this type of loan resembles a regular credit card in use. You have a balance and a credit line. Another peculiarity of HELOC is that after you get the loan, you will not be able to draw against your account for some agreed period of time (5, 10, 15, 20 years). You will have to pay off the loan first.
So, this is the basic knowledge you need to acquire before you decide to get a second mortgage. After you learn all necessary information associated with 2nd mortgage, feel free to apply online for this kind of loan on this site!

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