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Why 2nd Mortgage Lending Is Coming Back

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It’s no secret that the second mortgage market thrives when interest rates are rising. Homeowners that need quick cash are reluctant the refinance their existing loan because the current interest rates are higher than what they already have. A home equity line or 2nd mortgage enables a borrower to get access to quick money without being required to refinance their low rate lien.

Why would a homeowner want to trade in their home loan that has a 3.25% fixed interest rate for 4.625% mortgage?

With that being said this appears to be a time when consumers will seek home equity mortgages. And that is why a 2nd mortgage is so appealing to people that need cash for house repairs or need relief by consolidating credit cards into an affordable mortgage. Not to mention 2nd mortgages and home equity lines of credit are tax deductible in most cases.

Frequently Asked Questions About Second  Mortgages

Can I qualify for a 2nd mortgage if I have poor credit? Credit is a subjective term, so it depends on how you define “poor credit.” It is important to realize that if you have low fico scores then you will other compensating factors. Foe example, if you have a 580 credit score but you have a verifiable income a low debt ratio and more than 25% equity, then you may be eligible for a sub-prime home equity loan from a private lender. If you have a really bad credit score but have more than 30% income, you may qualify for a hard money 2nd mortgage.

How much equity do I need to qualify for a second mortgage? Over the last few decades people with good credit scores (above 680) could borrow an additional 25% equity beyond what their house was appraised for. Of course the borrower needed to supply the lender with complete income documentation and the debt to income ratio typically needed to remain below 45%.

What is the difference between an equity line of credit and a 2nd mortgage? Technically an equity line of credit is a second mortgage, but in this context most lenders are defining a home equity line of credit as revolving  credit that the borrower pays interest only on the portion they use. Usually a credit line or “HELOC” is set with an adjustable interest rate that can change annually. These are very popular with homeowners that are financing house improvements and construction in which the funds will be used over-time. A “2nd mortgage” is typically referred to as an installment loan in which all of the money is extended to the borrower up-front. These typically carry a fixed interest rate for a specific period ranging from 10 to 30-years. Homeowners who are consolidating debt or variable rate loans should choose a second mortgage with a fixed rate so they know exactly what their monthly payment will be.

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