Written by admin on Sep 25th, 2012 | Filed under: saving
It’s generally the case that when people have built up a certain amount of equity through the purchase of their first home, they are then in the position to free up and use some of the collateral for additional purchases. It is another lien against the deed to your home. Second mortgages are generally flexible, meaning they can be allocated to a variety of purchases. Loan terms vary from one to thirty years. Despite these many benefits, second mortgage loans are highly risky. The issue with second mortgages is that they work on the premise that life will stay the same as it has always been, in a financial sense. However, life rarely affords people this luxury. Before considering a second mortgage it is worth considering the up’s and downs of this financial strategy.
Because second mortgages are based on the amount of equity built up in the home, they can allow homeowners to borrow a large sum of cash with the flexibility to use it for any purpose. Because of this built in flexibility high cash purchases seem easily within reach.
Credit cards and personal bank loans are typically smaller are more limited in scope and large sums are difficult to get. Many people use second home loans for things like debt consolidation, home improvement, avoiding private mortgage insurance (PMI), paying for college tuition or investing in other properties. Other loans usually just aren’t big enough to cover these types of expenses.
Another advantage of these home loans is that they are considered safer by lenders than other types because they are secured by the house. In other words, banks will actually get something back if you default on the loan. This means borrowers will generally score much lower interest rates on second mortgages than on unsecured loans or credit cards.
And there are tax benefits of using second home loans compared with other sources. The interest from a second mortgage is tax deductible, unlike the interest from a credit card balance, for instance.
Even though banks consider second mortgages “safer,” there are still some serious drawbacks involved with borrowing more money against a house. The most significant of these is that second loans are incredibly risky. If the homeowner is unable to repay the loan at some point, he risks losing his house to foreclosure and in turn ruining his credit. The risk of foreclosure does not exist with other unsecured loans. This danger of a second loan should make borrowers seriously consider whether or not they really need the large loan.
Second loans require fees and closing costs, just like first mortgages. You may also be required to pay points (one point is equal to one per cent of the loan value) making the loan less attractive. Whilst second mortgage rates are better than credit card rates, they are still higher than first mortgage loans. This is because the first mortgage takes precedence over the second in terms of repayment in the case of default.
Second mortgages are my far a greater risk than the initial loan. It is essential that you have a plan B to support any financial payments should life throw a ‘curve ball’. Consider carefully whether the items required would be significant enough if they are placed alongside the loss of your home. If you consider the weighty risks against the benefits carefully, there are some very good offers to be found in the current US market place.
Tips on how to get a second mortgage
Check your credit rating – this is something the loan company will do straight away. So get a copy of your personal report to ensure that you know the good, the bad and the downright ugly!
Improve your credit rating
It’s not ideal to rush into a second mortgage and therefore you may have to do some maintenance work on your credit score. It takes around two to three months to see any significant improvement in your score, so ideally you should take time to end credit card loans and pay off any debts before you begin the re-mortgage process.
Go shopping for a Miami Mortgage
Make sure once you are in a strong financial position that you shop around for your loan. Do not stick to the routine of buying from your known lender it is possible to find really competitive deals in the US marketplace.
Miami Mortgage Closing costs
When you are refinancing an existing mortgage, the closing costs should play a vital role in your decision to go with a lender. The closing costs can amount to thousands of dollars. There are huge discrepancies between lenders and closing costs and you must get an accurate estimate before taking out the loan. Not only that, it will give you some negotiating power when closing the deal.