Second mortgage loans are also referred to as a “junior-lien” or a “home equity loan.” This type of loan works by using your house as collateral while you still paying on your primary mortgage loan. If you need a little extra income, a second mortgage loan may be an option for you. However, this isn’t something you should jump into without knowing and understanding what it is first.
What is a second mortgage loan used for?
Second mortgage loans are usually used to upgrade existing problems in your house or to increase the equity of your home. While most people spend the money on their home, you can spend the money however you see fit. If you have medical bills or student loans, you can pay them off, or use the money for major repairs on your car if necessary. However, keep in mind that your house will be used as collateral because if you default on this loan, you could potentially lose your home. There are also significant fees associated with second mortgage loans like closing costs, which are usually around 3% to 6% of your entire second mortgage.
Are there different types of second mortgage loans?
There are two different types of second mortgages. One is an “open-ended” loan or a “line of credit.” This kind of loan is when you spend money as you need, similar to having a credit card. A line of credit allows you to continuously withdraw money until you reach the maximum amount. At this point, you will have to pay off some of the loan before you can withdraw more money.
Another type of loan is called a “closed-ended” loan. A closed-ended loan is when you receive the full amount of the loan up front. After you’ve received the lump sum of money, you will continuously pay it off monthly until you no longer owe.
What is the interest rate for a second mortgage loan?
Expect a second mortgage loan to have a higher interest rate than your original mortgage. These rates fluctuate with the housing market though the second mortgage lender will also have some influence on the interest rate.
How much money can you borrow with a second mortgage loan?
The amount of money you can borrow with a second mortgage loan depends on several things. Not only is your debt-to-income rate taken into consideration, but your employment history, overall debt, credit score, and equity is also used to determine the maximum loan amount you are allowed. The amount that you owe on your original mortgage will also be investigated as second mortgage lenders tend to lose more than original lenders if the loan defaults.
Where do you get a second mortgage loan?
If you’re interested in taking out a second mortgage, you may be wondering where you can find one. You don’t have to go to the company where you obtained your original mortgage. You can go to virtually any lender to get a second mortgage loan. Remember that interest rates may vary, so be sure to find a good interest rate and closing cost rates. Write them down and compare them so you can find the best deal.
Featured Image: depositphoto/FeverpitchPosted on May 22, 2023