A second mortgage is a loan based on the equity an owner has built up in his house since he’s made payments on his principal mortgage. It’s a way to use your house’s worth to borrow a large sum, with the house itself as security. Equity is the amount of money your house is valued at over the mortgaged amount. This puts a limitation on how much you can borrow using another mortgage, but for most homeowners it may still be a substantial source of capital.
Figure out the total amount of equity you have in your home. Subtract the amount you owe on your principal mortgage from the appraised home worth as of your last property tax or personal appraisal. This outcome is your home equity. It is the maximum amount you can borrow using a mortgage.
Locate a lender who deals in home-equity loans, another term for second mortgages. Start your search with your current lender or the lender who holds your principal mortgage.
Find out the sum against equity the lender is prepared to lend you. Many lenders will lend just a proportion of the available equity to avoid a loss should your house collapse in value. In case of a default due to non-payment to either the principal mortgage lender or the secondary lender, the principal mortgage is paid initially, followed by the next mortgage. That is why it’s important to the lender that the actual equity in the house at default is sufficient to pay for the loan.
Determine the best loan conditions for the next mortgage. Pick between fixed-rate payments that remain consistent over the life span of the loan and adjustable-rate payments that change according to market conditions. Ensure that you can afford adjustable-rate payments if they rise significantly before. The interest rates are generally higher on second mortgages compared to mortgages due to the higher danger from non-refundable due to changing home worth.
Prepare the loan repayment provisions with the lender. Produce a payment system that suits your requirements. Choose a standard loan payment in one lump sum should you want a great deal of money immediately. This determines a payment program that is easy to follow and expect. Proceed with a revolving line of credit if your requirement for those funds extends over a long period or if you’re unsure of the total sum required. The line of credit lets you withdraw money against your house equity, with payments being based on the amount withdrawn rather that the maximum worth of this loan.
Shop around to find the best rates and loan conditions possible. A lender other than your principal mortgage holder may require a new appraisal before providing you with the loan.
Apply to your next mortgage with your favorite lender. Provide any financial advice required and go through the new appraisal if necessary. Wait for the next mortgage to close. You will want to cover closing costs, but they will be lower compared to those of a primary mortgage, since there’s less legwork in collecting background information. And the principal mortgage holder did the title search.
If your loan is approved and you receive the cash your the lender will put a lien against the house for the loan amount.