Second mortgages are loans against your property that are recorded on the deed at 2nd place after the first mortgage. Most frequently these loans come in the form of home equity lines of credit or the more conventional lump sum second mortgages. The strong popularity of home equity lines of credit (HELOCs) have darkened the luster of conventional lump sum second mortgages, but fixed-rate second mortgages nevertheless exist and serve valuable purposes for some homeowners.
Significance
Second mortgages are a main source of funds for homeowners because the early 20th century. Even banks and credit unions that do not make first mortgages regularly provide second mortgages and home equity lines of credit. Smaller banks, credit unions and lenders can better afford to make second mortgages because they are smaller in quantities than first mortgages. Fixed-rate next mortgages, as long as interest rates are low, stay the loan of choice for many homeowners.
Time Frames
The time period from application to approval to closure can be critical to homeowners who need funds quickly for emergencies and other unplanned expenses. The time frame for repayment of second mortgages might help homeownersthe longer repayment periods of up to 15 or twenty years are usually favored.
Characteristics
Fixed-rate second mortgages comprise timely, often quite quickly approvals and closings. Borrowers face no undesirable surprise interest increases because the rate and payment amount are steady throughout the period of their loan. Repayment periods typically range from five to 20 decades, permitting borrowers to exchange monthly payments that match their income stream. Interest expenses are usually tax deductible, helping homeowners reduce the real cost of their next mortgage.
Considerations
Adding another lien into a main residence is almost always a serious consideration. Think about your need for the funds, your regular monthly income, job security and if you plan to maintain your house for the very long term or market it in a few decades. It’s crucial to understand that in the event that you suffer financial hardship and cannot keep the next mortgage payments in a timely manner, the second-mortgage lender may foreclose on your house just as the mortgage holder may, forcing you to lose your house.
Caution
Fixed-rate second mortgages are rewarding income resources for lenders so be certain that you know your creditor or diligently research unfamiliar resources of loans. Avoid making any written commitments until you’ve got confidence in the potential lender. Carefully read all of second mortgage documents before registering any notes. Get whole disclosure concerning fees and loan terms. Demand answers that you may understand to some language that appears confusing or misleading.