Second Mortgage Tips
Useful Refinance Loan Advice
By Maria Ny

As the 1st mortgage interest rates rapidly increase, now may be the time to refinance your variable rate home equity line of credit or adjustable rate home equity loan and convert it into a fixed interest rate 2nd mortgage. Otherwise, your payments could become more than you can afford, which could be dangerous because your line of credit is secured by the equity in your house.

By refinancing your existing second mortgage or line of credit you could save a lot of money in the long run. There are many places you can find a fixed interest rate second mortgage loan. These tips can help you keep your costs down and help you avoid unpleasant surprises at closing.

  1. First, order your credit report from all three credit reporting agencies and check it for errors. An inaccuracy you aren't aware of could cost you thousands of dollars in extra interest or even cause a denial of credit.
  2. Find out what current mortgage rates are and whether they are going up or down. Knowing the current mortgage rates will give you bargaining power when you shop for your new loan.
  3. Talk with your existing lender about mortgage refinancing of your home equity line or variable interest rate 2nd mortgage. At the same time, contact at least one bank, one credit union and one direct mortgage lender. Their 2nd mortgage loans probably cost less than ones from finance companies and mortgage brokers, and one of them could possibly give you a better deal than your existing lender.
  4. Most mortgage lenders will only loan you up to 85% of the value of your home based on the total of both the first and second mortgages. Remember that 125% Loan To Value (LTV) second mortgages or any other loan that allow you to borrow beyond the value of your home. Mortgaging your home for more than it is worth is an easy way to lose it.

The other problem with 125% LTV loans is that you may not be able to claim all of the interest you pay on the loan. According to the Internal Revenue Service, there is a limit on the amount of debt that can be treated as home equity debt. The total home equity debt on your primary residence and second home is limited to the smaller of: - $100,000 ($50,000 if married filing separately), - The total of each home's fair market value reduced by the amount of its home acquisition debt and grandfathered debt. Interest on amounts over the home equity debt limit generally is treated as personal interest and is not deductible, so you could lose the tax deduction benefit if you mortgage your house for more than it is worth.

 

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