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Archive for Second Mortgage Articles

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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Over the years, homeowners have chosen home equity loans for cash back purposes for many reasons. First of all home equity loans also known as 2nd mortgages have been accessed easily by a high percentage of homeowners. Second of all, equity mortgages are a great source for financing because interest rates are lower than credit card rates. Credit card companies are also less likely to approve loan amounts as large a mortgage lender would on a secured second loan.

Compare 2nd Mortgage Loans Online for Home Improvements, Consolidation and Cash Back

Another significant benefit for a 2nd mortgage over a credit card is the fact that the interest on the mortgage is deductible up to $100,000 in most cases, whereas the interest on credit cards is not deductible. For the last few decades, homeowners have enjoyed taking out home improvement loans to remodel or make repairs to the property. Up until recently making improvements to a home would increase the home’s value, but the current housing crisis has hindered that luxury.

Home loans for bad credit have not been as easy to come by this summer, but many insiders believe that will change as more private money lenders get back into the lending business. However getting a bad credit 2nd mortgage is next to impossible these days because the soaring defaults rates have made second mortgage lenders uneasy about extending money in loan to value situations.

According to recent sources second mortgage loans continue to be a problem as defaults continue to mount at a record pace.  Unfortunately for 2nd mortgage lenders, they are still defaulting at a higher rate than first mortgages. Refinancing a 2nd mortgage may be difficult if you are late on your loan. Negotiating a buy-out may be an option, as some second mortgage lenders have been agreeing to “pennies on the dollars” in some cases.

With interest rates falling to record lows again this year, you can see why equity mortgages have become such a hot commodity. The Federal Reserve won’t be able to keep key rates low for much longer, so our experts suggest reviewing quotes from 2nd mortgage lenders now if you are serious about borrowing money without refinancing your present loan.

Rates on Equity Mortgages and Lines Remain at Record Lows!

Taking out a second mortgage may not be as easy as it was a few years ago, but millions of homeowners continue to choose home equity lines over credit cards and unless the IRS does away the interest deductions, there is a good chance these equity mortgages will remain a popular financing vehicle for homeowners to access quickly and cost effectively. Read more about deducting interest on home equity liens from the IRS.

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If you have a first and second mortgage, you may be thinking about saving some money by reducing the interest rate from 2nd mortgage refinancing.  It just makes sense to refinance 2nd mortgages that have a high interest rate.  With rates at record lows, there is no reason to take a risk keeping an equity line with a variable interest rate. The best option is to try to roll your second loan into a new first mortgage that has a lower rate that is fixed.  However, make sure you have good credit if you want to refinance 2nd mortgages with another fixed home equity loan because interest rates are lower with good credit and more companies are willing to refinance.  When you refinance adjustable rate credit lines for lower interest, fixed rate loans, you can lower monthly payments and overall cost.

Make sure you have good credit if you want to get a refinance loan with another equity loan rather than try to roll your second lien into a new first mortgage that has a lower rate that is fixed.  Prior to 2nd mortgage refinancing, it is a good idea to take a good look at your finances.  There is wisdom in the decision to refinance a second mortgage that have a high interest rate or to refinance adjustable rate credit lines, so wisdom should be applied in getting your credit in order prior to the application process.

Solutions for a 2nd Mortgage Refinance  

2nd mortgage refinancing can create a chance for you to pay off all your debt faster if you plan properly.  Choosing to refinance adjustable rate credit lines or refinance 2nd mortgages that have a high interest rate can lower interest rates and monthly payments.   You should try to roll your second mortgage into a new first mortgage that has a lower rate that is fixed to facilitate paying down the principal by adding a little (or a lot) extra each month to your payment.  If you can’t roll them together because of a lack of home value, make sure you have good credit if you want to refinance the 2nd loan with another home equity mortgage.

When you refinance adjustable rate credit lines through mortgage rate refinancing, you can drastically lower your monthly bills.  When you refinance 2nd mortgages that have a high interest rate, the same result can occur.  For the best results, try to roll your second mortgage into a new first mortgage that has a lower rate that is fixed.  For the second best option, make sure you have good credit if you want to refinance the 2nd mortgage with another subordinate financing solution.

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In the end, only you can answer that question. However, there are some situations when cash refinancing makes sense. Some people have a second mortgage or a HELOC that has a higher interest rate. You can take money of refinancing your primary mortgage and pay off that 2nd mortgage or line of credit. You will get lower payments at a better interest rate. Not only that, you will have the full ability to claim the mortgage interest you pay on your income taxes. It offers many benefits when you use a cash out refinance to get rid of a second mortgage or an equity line of credit.

Some homeowners have accumulated a ton of debt from credit cards and car loans. If the amount of your debt payments is overwhelming you, using a refinance to get money makes sense. It will help you consolidate your debts into a single payment that is lower than what you are paying now. You will be in a better financial position in this situation. However, it comes with a big caveat. Many take the opportunity to clear their slate with cash refinancing. However, if you go back to spending money like crazy, you are defeating the purpose.

A medical emergency is another reason. Some people find themselves in a situation where they need cash in hand to pay for a critical medical procedure. Medical insurance will cover only certain procedures. In addition, even with insurance, there can be large co-pays and coinsurance requirements that can overwhelm you easily in the financial arena. Using a cash out refinance is one way to clear up that cash deficit. Now, a plastic surgery procedure usually does not qualify as a medical emergency, but again it is completely up to you.

Look at the reality of taking out a fixed rate 30-year mortgage on a short term purchase. Do you want to pay for the next thirty years on a vacation you take and forget about? Do you want to pay for that high end sports car for thirty years but only drive for maybe three or four years? Use a cash out refinancing for the right reasons. It is the responsible thing to do with your mortgage and for your financial future. You can make a real difference in your present financial position with a cash refinancing. However, make sure you do not end up in the same position again. You will not be a happy person.

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Although the economy is slow and everyone is tightening their belts to save money, now is probably a good time to get a home improvement loan so you can increase the value of your home with needed repairs and updates. With the construction industry competing fiercely for work all around the country, you could end up getting expensive repairs done on your home for a fraction of the cost. A home improvement loan can provide you with access to funds whenever you need them. There are a couple of ways you can tap into the equity in your home for financing a home remodel or repairs.

Increase Home Equity by Financing Home Improvements

You could get a home equity line of credit based on the equity you have available in your house. The credit line would function much like a credit card. Each payment you make on the loan frees up credit for you to use when you need it. It is usually set up in such a way that you can access the funds by writing a check, using a debit card, or transferring money into your checking account if you have your accounts at the same bank as your loan. A home improvement loan, on the other hand, is basically a second mortgage on the home. The lump sum amount you receive is equal to the equity you have in your home. When you make payments, you are actually paying the loan off.

Home Equity Line of Credit vs. Home Equity Loan

There are a few benefits and disadvantages to using a home equity line of credit vs. home equity loan. Home equity lines offer flexibility because you only pay interest on the amount of funds you actually use. Additionally since it is revolving credit, you can use the money over and over again. Since it is a revolving line of credit, you may not get as much money as you need based on your credit and ability to pay.

You may be able to get more money with a lump sum home improvement loan for home remodeling. However, both types of equity loans typically come at the cost of high interest rates. However, simple repairs and updates can add thousands of dollars to the value of your home. This is particularly useful if you are trying to sell your home. Take the time to crunch the numbers to make sure you will end up coming out ahead. Look around for the best rates you can find for financing your home remodeling.

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It wasn’t too long ago that homeowners were taking out home equity credit lines, using their house like an ATM machine to access cash.  Americans utilized home equity loans and credit lines to consolidate debt, finance home remodeling and some people even financed extended vacations.  Homeowners did not need any equity in their home and second mortgage lenders often approved credit lines without even requesting a formal appraisal.  In many cases, borrowers would convert their variable rate equity line into a fixed rate home equity loan once they used all of the funds.

Eliminate Compounding Interest & Refinance Credit Lines into a Fixed Rate Mortgage

Everything continued to go great for homeowners as property values continued to rise nationally and lenders continued to extend 2nd mortgage options.  In 2007 the mortgage debacle evolved into a full-fledged housing crisis that we still have not recovered from yet.  All of a sudden millions of homeowners found themselves stuck with a variable rate home equity line of credit or an equity loan that had a rate the borrowers were uncomfortable with as the economy started sinking. Guidelines for mortgage refinancing have changes so check with your loan officer for eligibility.

Second mortgage refinance options started dwindling as lenders began cutting and eliminating their home equity programs.  The few lenders that were left offering home equity lines tightened the guidelines significantly and now required more equity, higher credit scores.  If that wasn’t enough, the home equity lenders started requiring full income documentation and full URAR appraisals.

Many borrowers turned to refinancing because they continued to approve cash out loans up to 95%.  These FHA mortgage loan programs enable borrowers to consolidate debt and refinance credit lines and 2nd mortgages into their new 1st mortgage.  Still even with the more flexible FHA guidelines, many homeowners were unable to refinance home equity lines because their property values were declining rapidly.  With the adjustable rates contributing to higher monthly payments for the credit lines, many people could no longer afford their second mortgage and thus many homeowners defaulted.  Today, we recommend refinancing your credit line into your first mortgage. However, if you do not have the equity or credit scores needed to qualify, consider a second mortgage modification.

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Jan
19

Refinance or Second Mortgage?

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One of the most common questions I get from consumer looking for cash is whether they need a refinance loan or to take out a second mortgage.  Every situation is different, so there is not a simple “canned answer” when it comes to cash refinancing.  In order to offer educated advice on a first or second loan I need to understand the big picture.  In an effort to responsibly address this financing scenario, I need answers to the following questions below:

What’s your loan to value (LTV)? We need to determine how much equity you have because you may not be eligible for a credit line or second mortgage.

How is your credit? Whether your fico score is 580, 680 or 780 this will enable me to understand further what cash out options are available to you. Cash out refinancing guidelines range from 75 to 90% loan to value depending upon what type of borrower you are.  It also matters how big the “mortgage loan” is that you plan to take out.  Some lenders will allow good credit borrowers to go to 90% LTV on a credit line or fixed home equity loan if it is only for $35,000.

Do you have pre-payment penalty on your first mortgage?  Sometimes borrowers will have pre-payment penalties that equate to thousands of dollars. When a homeowner has a large pre-pay on their existing mortgage, it can make a second mortgage option more attractive.

What are you doing with money?  It is important to know why you are considering a cash back refinance. For example if you are consolidating debt then we would always recommend a fixed rate loan that featured simple interest.  Whereas, if you are remodeling your home and you are not sure how much cash you will be borrowing or when you will need the money, then a home equity line of credit may be the perfect solution.

Do you have a second mortgage or equity loan already? If you already have a “2nd mortgage”, we will have to refinance it and roll the balance into the new loan.

Interest rates remain at record lows and the guidelines for cash out financing appear to be expanding a bit in 2013, but it is important that you discuss you goals and situation with an experienced loan officer so you can make the best financial decision. If property values rise like they are predicted, you can expect to see more home equity products that provide cash back for homeowners.

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