Affordable Home Equity Based Second Mortgages
What is a second mortgage?
A credit service which has been secured against the equity built up in a home is known as a 2nd mortgage loan. Second mortgages are basically mortgage loans that are over and above first lien loans involving the same property. Nevertheless, they will have much higher interest rates and shorter loan durations as compared to primary mortgage loans. Homeowners, whose home values have increased, may think of converting their home equity into cash and use it when most urgently needed. But the rates of interests provided will vary according to the type of additional mortgage loan chosen and its amount as well as the current status of credit rating of the applicant.
Types of 2nd mortgage loans
Usually, one could obtain a second mortgage loan in the below mentioned forms:
- Home equity loan (HEL) OR
- Home equity line of credit (HELOC)
Home equity loans are available in lump sum amounts and will have fixed rates of interests all along the life of the loan as a result of which the monthly installments will be more stable and predictable. As compared to this, home equity lines of credits can be normally accessed within pre-determined credit limits worked out by lenders. Besides, HELOCs will have variable interest rates and these are likely to be low initially but as time passes, they may rise or adjust quickly depending upon market conditions.
Who will be able to benefit?
Securing a second mortgage can be one of the best alternatives for borrowers who are considering:
- Getting rid of high interest credit card debts
- Renovating their homes to raise their values
- Paying off costly student or education loans
Rates of interests offered on 2nd mortgages, although high in comparison to those provided on first mortgages, will be significantly lower than those charged on either credit cards or education loans. Hence, by obtaining a low rate HEL or HELOC, you could not just reduce your monthly debt payments but could also have only one single monthly payment to manage. The resulting installment will be easily manageable as well as affordable and you may save a lot of money over the long run. But the right choice has to be made.
How to qualify for second mortgage?
A majority of the loan dealers are likely to be a little bit tougher when it comes to granting approvals for 2nd home loan applications. Still if you follow a stepwise approach, you could have much better chances of getting approved for a solution that fits your budget. To that effect, following steps might prove to be of help in case you are out to apply for one.
- Gather all documents relating to your first mortgage loan, monthly income, bank accounts, employment (past and present) and credit verification. Even get the value of your home appraised.
- Contact your lender by scheduling an appointment with a loan officer and be prepared for a face-to-face interview. Furnish all the necessary information which you have gathered for scrutiny. The lender reprenstative will let you know if you pre-qualify.
- If you have pre-qualified for a second mortgage, you will need to make yourself available for the underwriting process during which all the details that you have provided will be verified again.
- After having determined your qualification for a home equity based mortgage loan, the loan officer will proceed to close the case and you will be required to attend the closing. You will need to sign a series of papers once the loan officer reviews your application, re-verifies the information given by you and prepares the closing documentation.
Typically, completion and finalizing of the loan agreement may attract closing fees, debt pay offs or any other charges which have to be borne by the borrower. The entire process could consume a lot of time and there could be few complications as well. Therefore, a better way out is to seek help from a competent mortgage expert who is not only thoroughly well versed with the procedure but also has knowledge, skills and experience in helping you to improve your chances of getting your 2nd mortgage loan request approved.