A very low-cost means of funding your needs, business or personal, is with second mortgage loans. You can have a second mortgage loan for varied reasons like, carrying out home renovations, improving your property, raise finances, start a business, or to buy a new property among many others. If , you take a repayment mortgage and each year, for several years, you pay a portion of your monthly salary towards reducing the amount, then, you will pay off some of the mortgage after a few years. This amount together with the increasing property value will result in equity. Thus, equity means the difference between the market value of a property, and the mortgage against it or claims held against it. If you have equity, you may have an option of getting second mortgage loans. In other words, a second mortgage loan can use the first loan to be pledged as collateral.

A 2nd mortgage uses the same house as collateral for obtaining a loan from the mortgage lender. Since the same house functions as collateral for the primary mortgage, the primary mortgage lender has prior claim on the house in case of default. This makes the secondary mortgage lender’s position somewhat unenviable. Hence, the second mortgage carries a higher rate of interest than the primary mortgage. The loan is provided depending on the amount of built up equity on the house. The built up equity on the house is the difference between the market price of the house and the amount of mortgage payments due on the first mortgage. In other words, a borrower needs to have sufficient equity on the house in order to obtain a second mortgage. In case the equity on the house is negative, it is unlikely that the lending institution will be willing to provide a second mortgage loan. The loan to value ratio is calculated by dividing the payments due on the first and second mortgage, by the appraised value of the house. A higher loan to value ratio is unfavorable. A traditional second mortgage is a fixed rate level payment mortgage that has to be discharged over a period of 15 or 30 years.

There are situations when you may want cash out some of your home equity by taking out a second mortgage loan. They can be.

● When you have accumulated a large amount of debt and need to pay them off.

● You may want to make an investment or start a business and need capital. In this case, you may want to make sure that your return on the investment is higher than the interest rate on the second mortgage or you may end up deep in debt.

● You may want to avoid paying private mortgage insurance. This is possible only when you get a second mortgage that makes up 20% of the home purchase price.

● You may want to purchase an expensive item like a new car, new appliances, or another property.

● You may want to remodel or add to your home.

You could use the same process you used to find your first mortgage to find a second mortgage loan. You may shop around for a suitable loan by approaching different lenders and getting quotes. You can simply fill out a free, short, no-obligation free form to get quotes from community ranked lenders on the website, in case of an online application. Then you could compare the quotes, find the offer that may work best for you, and fill out the necessary paperwork to apply for the loan. The lender would conduct an appraisal of your home in order to determine its current value, complete all the steps necessary to process the loan, and arrange for the loan closing. At closing, you may have to sign the note and security instrument required by your lender. You may have to pay closing costs similar to what you paid when you got your first loan.

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Category: Finances
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