All About Second Mortgage Home Loans and Avoiding a Foreclosure

If you own a home and need additional funds, you can take a loan against home in addition to your primary mortgage. A second mortgage loan has its advantages and disadvantages. Make sure that that you can afford one financially, to avoid the possibility of a foreclosure. It may be beneficial to improve your credit score but do a cost benefit analysis before you decide to take it.

Before taking up a second mortgage loan, make sure you have proper reasons. Make a detailed study on the tax that you'll have to pay to own a second home. Also, find out the most suitable mortgage rate that you can afford. Never stretch your income so that you live in a tight budget. A little planning will help you to manage your finances better.

Economic downturn leads to many foreclosures. As a result, prices drop significantly. Various deals are offered by the real estate companies and many people look to get a second home mortgage. Even if your credit score is good, ensure that you can afford a second loan. Affordability is the key. Calculate how much the loan will cost every month. If the loan you want to take is for investment, estimate your profits each month.

If your financial position is good and you want to get a second home mortgage, check out the various deals available in the market. Slightly lower interest rates can save you huge amounts of money. Never jump into the first offer that you get. A thorough research online can get you plenty of good deals. Make a comparison between at least 3 loan companies to find the best interest rates.

Refinance Second Mortgages

Refinancing a second mortgage can be a great way to reduce interest rates on second mortgages, pay off their complete mortgage or decrease the monthly loan repayment. Even if you have a bad credit score, you can get a refinance. Refinancing lets you get a lower interest rate thereby decreasing your costs substantially.

Second Mortgage Lenders

Various types of lenders are available. Check out different schemes and offers they have before finalizing a lender. There are lenders that offer instant loans to people who have a bad credit score. However, you should be careful in selecting such lenders as most of these offer loans at low introductory interest and after a few years' hikes interest rates. Subprime lending crisis is the result of such loans. Good and credible lenders always take into account the credit score and lend money on the basis of your home equity. They use your home equity as collateral.

Second Mortgage Quote

Second mortgage quotes helps to know the interest rates on second mortgage loans. So, getting a second mortgage loan will help you find the best possible deals.

So, second mortgage loans are beneficial to those who are looking for financing and already have a primary mortgage. A second mortgage might have lower interest rates and help you pay off current debts or even ward off a foreclosure. But think carefully before opting for second mortgages.

Second Mortgage Loans After Bankruptcy

The purpose of bankruptcy is to give the debtor a new start in his life by repaying creditors in a systematic way. Thus, bankruptcy does not prevent anybody from taking a loan. Today, the lending rules are becoming much more relaxed, and you should not worry that you have lost your dream to buy a home or acquire a property even after you have gone bankrupt.

A second mortgage after bankruptcy requires at least two years waiting on part of the borrower. He should also pay all the bills on time during this period and save for the down payment amount, if possible. One fact that you have to keep in mind is that you may not qualify for the best interest rates, but your determined efforts to re-establish your credit could convince the creditor. A large down payment might impress the lender, and he may offer a lower interest rate. PMI is the other factor that would be involved, due to the poor credit history. Avoid mortgages with two to three years of prepayment penalties. Remember, the rates on mortgage after insolvency may be up to 12 times higher than that of the regular mortgage.

If you plan to get a mortgage within two years of bankruptcy discharge, you have to provide evidence for the flawless on-time payments you have made since your bankruptcy. But after the two-year waiting period, it is easy to get a mortgage with a small down payment, and you may even qualify for a 100% mortgage.

Non Standard Mortgages

Although you may think that there is just the one kind of traditional mortgage, whether it be a 100%, no deposit or interest only mortgage, there is also another kind, known as a non standard mortgage. This is for when the property you're buying isn't made of the normal brick and mortar construction; it could be steel frame, self-build or any other type of material.

If this is the case, most lenders won't actually give you a mortgage, since there's no real resale value associated with the property, and they can't forecast what the self-build or similar property will be worth in the future (unlike a more traditional building). However, you can still get a non standard mortgage from some lenders - it just usually means different terms from what a more standard one would offer.

Assessment

Before you get this type of mortgage, you'll be assessed by the lender to make sure that you can pay back the mortgage itself. This is where it's the same as a normal mortgage. They will also assess whether they feel that they could make any money back on your property, if it was to be repossessed. If the lender feels they could sell your property again, the better the chance of you being approved for a non standard mortgage.

You can actually pre-guess whether you'd be eligible for a non standard mortgage or not, by knowing some of the criteria that will usually work against you. These include:

Properties with flying freeholds. So, for instance, if one of your upstairs rooms overhangs one of your neighbour's lower rooms, that's known as flying freehold, and lenders aren't too keen on these types of property.
High-rise flats, particularly ones that are over 5 storeys, or if there are balconies on the flats that allow outside access.
Local authority owned, or ex-local authority owned flats. Lenders are particularly loathe to offer mortgages on properties where there are a block of flats, and there are still some that are owned by a council or tenant association - they far prefer if all the flats belonged to homeowners.
Any properties that are above shops are also very unpopular with lenders, due to the threat of additional wear and tear, burglary or fire.
If the property you're buying is either steel-framed or timber, like a log cabin for example, or a pre-fabricated home.
Other types of non standard properties, such as ones that are made from non traditional build or material.


If you are looking at buying a property that isn't what's classed as a traditional type of building, like a wood cabin holiday home in the Highlands for example, you don't need to worry unnecessarily about getting a mortgage. Yes, it may be a little more difficult than a standard one, but it's not impossible. Check with an independent mortgage advisor on the best way forward, or even do it yourself and look at the various mortgage options available to you online.

How Do Second Mortgage Loans Work?

If you need extra money for home improvements, debt consolidation or even to purchase an additional home then a second mortgage might be exactly what you are looking for to make that happen. However, when you hear the term second mortgage you might not be sure exactly what it means. To put it simply it is just another mortgage on your existing home. Basically you are borrowing money for one or more reasons and using your home as collateral.

The term "second" means that the loan you are taking out does not have priority on your home if for some reason you can't pay it back on time. In all cases the initial mortgage on your home would be paid before any money would go toward a second mortgage payment. With that being said, the next question is why in the world someone would put their home up as collateral for money. Well, the answer is that you shouldn't unless you are in a situation where you need a large amount of money fast.

Western Vista Federal Credit Union in Wyoming notes that a "second mortgage is what it says - the second loan against a specific piece of property. Consider this example: Let's say you have a first mortgage on your home. The value is $100,000 and you have a $60,000 balance left to pay on your loan. The $40,000 difference is considered equity, or the part of the home that you own outright. If you wish to further borrow against that $40,000, you would be taking out a second mortgage on the home in order to do so. Why borrow against this equity? In many cases, the interest rate you pay on your mortgage is lower than many other types of loans. Interest is also frequently tax deductible for a first or second mortgage, but not necessarily for a car loan or a credit card."

When a person borrows money against their home that's a large chunk of change being used for collateral and it also allows the borrower to get a bigger loan. There are some disadvantages to second mortgages such as the fact that you are taking a chance with your home should something happen and you have trouble paying the second mortgage back.

Take a look at the interest rate on a second mortgage too. You can probably expect the rate to be a bit higher because it is riskier to the lender who knows that if a default occurs the primary mortgage gets paid first and then the second mortgage. You can also be choosy about a second mortgage so check more than one source when trying to make a decision. Watch out too for balloon payments, which is a payment that starts out low and rises as time goes by. If possible, choose a fixed interest rate. Also be aware that second mortgages, like any other loans, have additional closing costs. There are the appraisal fees, application costs and other closing costs that can be as random as title searches.

At the Mortgage101 they say, "Many companies will charge a fee for lending you money. The fee is usually a percentage of the loan and is sometimes referred to as "points." One point is equal to one percent of the amount you borrow. For example, if you were to borrow $10,000 with a fee of eight points, you would pay $800 in "points." The number of point's mortgage companies charge varies, so it may be worthwhile to shop around."
You also want to make sure you get a second loan that allows you to keep your first mortgage.

In the long run second mortgages are a good bet for home improvement financing and some second mortgages can even be extended for up to 20 years. Remember though, it's not only home equity lines of credit that don't outline the amount of the monthly payments so read your contract. There are many second mortgage loans that don't either. Joe Prussack notes, "Everybody loves low monthly payments... These popular 2nds' (second mortgages) also usually have adjustable rates so these loans aren't for the faint hearted." In this case, if you are one of the fainthearted then stick with a fixed interest rate versus one of the variable interest rate loans. This way you will know exactly what payments are expected each month be it for a second mortgage or another type of loan in order to secure a big ticket item that you have needed for the past few years.

Rita is a seasoned free-lance writer who has produced many popular articles related to real estate financing. To learn more about cash out second mortgages and equity loan options, please check out the Second Mortgage Refinance programs.