Second Mortgage Loans

Second Mortgage Loans
Use Your Home to Get Quick Cash or Consolidate Bills
Simply put, home equity loans are loans in which a person uses the equity in his home as collateral. When homeowners need a lump sum or a revolving credit line for a specific cost, many consider home equity loans as a first option to meet their financial needs.

A home equity loan is essentially the same thing as a second mortgage. It is a new mortgage, which requires separate monthly payments as your first mortgage.
Second mortgage loans are generally based on a given percentage of your home’s appraised value (usually 80 percent), minus your outstanding mortgage balance. For example, if your home were appraised at $120,000, 80 percent of that total would be $96,000. If your remaining unpaid mortgage were $70,000, the available home equity that you can borrow would be $26,000.

Second Mortgage line of credit or HELOC
Second Mortgage lines of credit are more flexible and usually carry a shorter term than home equity loans. With an equity line of credit, you receive a specific credit limit based on a percentage of your home’s appraised value (usually 50 to 75 percent) minus your remaining mortgage balance. Your history of the ability to repay is taken into account. An advantage is that you only pay interest on money used, and if you don’t use it, it costs you nothing.

Interest Rates
Interest rates for Second Mortgage loans are variable—usually one to three points above prime interest. Because your house stands as collateral, interest is usually tax-deductible. The downside is that because your house is used as security you could lose it if you fail to make your monthly payments.