One of least considered benefits of home ownership is the fact that you are able to use your home as collateral in order to borrow money that you may need by taking out a second mortgage. It must be said that up until quite recently most banks and lenders restricted the amount of money they would lend for a second mortgage. In fact, a second mortgage was often regarded as proof that a borrower was in financial hardship. However, this is no longer the case, and it’s much easier to get a second mortgage than ever before. There is a huge selection of loans to choose from and these will typically come with very competitive terms and rates.
In order to obtain a second mortgage you will be required to go through the same process as when you got your first mortgage. This will generally mean that your lender will require all the same paperwork, as well as assessing your assets and liabilities. It is from the information you provide that a lender can determine whether not they will approve a second mortgage.
As with a first mortgage you’ll have a choice of a fixed or variable rate loan, although the maximum terms offered tend to differ. A fixed-rate second mortgage will typically be offered for a term from 15 to 30 years, whereas a variable rate loan, such as an adjustable rate mortgage, will generally be offered between one and 20 years.
If you are thinking about taking out a variable rate second mortgage there are a number of factors that you will need to consider about the interest rate. These will include when the interest rate may change, how frequently the rate may change, the maximum the interest rate may rise to, and what the rate changes are specifically based on. In fact, it is advisable that a borrower never signs any paperwork before these facts have been established.
You will generally find that second mortgage interest rates that are available on the market today are extremely affordable, and this in a large part is due to the fierce competition among lenders. It is not unheard of to be able to obtain a second mortgage that offers an interest rate that is far below the prime lending rate, which is the rate that is traditionally used to price second mortgages.
A second mortgage will always be secured against the same property as a first mortgage, and the value of the loan will be determined against the amount of equity or interest of ownership that a person has in a property. A second mortgage may be used for various purposes which can range from home improvements, college tuition fees, debt consolidation or any specific emergency expenses that you may have.
As the market has become much more competitive over recent years, borrowers can now typically choose between three types of loan. Firstly, there is the traditional second mortgage which operates in exactly the same way as a first mortgage, then there are two forms of home equity lending which are a home equity loan, which is a lump sum payment generally offered at a fixed-rate, or a home equity line of credit which works in very much the same way as a credit card and will come with an adjustable-rate.
Second mortgages will usually only be offered up to a maximum percentage of the appraised value of a property. This is typically no higher than 90% of the property value, and therefore if you have a relatively new, high loan to value first mortgage it is unlikely that you will be approved for a second mortgage loan.
However, over a period of time you will be making regular monthly mortgage payments which will reduce the balance of your loan, and the majority of the time you can expect your property to increase in value. This in turn will increase the amount of equity that is available in your property, thus allowing you to obtain a second mortgage if necessary.
In order to secure the best interest rate on a second mortgage it is recommended that a borrower closely follows market trends. This will allow a homeowner to see what the prime rate is and what individual lenders are charging. The best course of action when looking for a second mortgage is to obtain details from a number of lenders, as this can help you to ascertain who is offering the lowest rates and terms that are most applicable to you and your situation.