Second Mortgage Loans, Home equity, HELOC, Interest Rates, Guide4Home

Second Mortgage Loan

Types of second mortgages available - HELOC and Home Equity

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More and more people are taking out second mortgage loans in order to restructure their existing home equity debt. Many of us are finding that a large percentage of our income is being eaten away by debt and bills. Mortgages generally have the best rates when compared to credit cards and personal loans, and so a second mortgage to pay off these debts can be quite appealing. Taking out a second mortgage could ensure that the borrower is able to manage their expenditure and debt more easily and may even have a little extra left-over for themselves at the end.
Of course, second mortgage loans are not just for paying off existing debt or for reducing monthly outgoing. The extra funds could, for example, be used for home renovations like upgrading a kitchen or extending the house. Some borrowers may use the second mortgage to fund a second honeymoon or a once in a lifetime vacation. Others, on the other hand, may need the cash to pay for further education, either for themselves or for their children. It is highly likely that at some point in all of our lives, a lump sum of money will be required, and obtaining a second mortgage is one possible way of doing this.

Applying for a second mortgage tends to be much more straight-forward than the original application. As long as you have good credit and can prove evidence of income, obtaining the second loan should not be too difficult. Some loans, known as zero or no-equity loans allow you to borrow up to 125% of the value of your property. However, the interest rates tend to be much higher and there are much stricter qualifying conditions.

The two main types of second mortgages are known as Home Equity Loans and Home Equity Lines of Credit (HELOC).

A Home Equity Loan is a lump sum loan. Although closing costs tend to be much lower than those on your original mortgage, the interest rates are fixed and tend to be slightly higher than the rates imposed on the first mortgage.

The home equity line of credit works in a similar way to the home equity loan, however there are some important differences. A variable rate of interest is applied which means that the monthly payment can fluctuate. In times of low interest, these loans can be extremely appealing; however, there is a risk that rates could rise, making monthly payments much higher. The HELOC works in a very similar way to a credit card, borrowers can continue to use the account as long as there is a balance and a line of credit throughout the term.

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Second Mortgage Loan

Types of second mortgages available - HELOC and Home Equity

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