What is a Second Mortgage?

Looking to pay for your child’s college education, improve your home, or maybe you want to consolidate credit card bills or high interest loans? If so, you may be considering a home equity loan or line of credit. However, the terminology surrounding home equity loans can be confusing.
A second mortgage is a secured loan that is subordinate to your first mortgage against the same property. A lump sum of money is lent out up front and is then repaid over a fixed period of time.

In contrast, home equity line of credit (HELOC) is a form of revolving credit, where your home serves as collateral. You are approved for a specific amount of credit and then may borrow up to the maximum amount within a set time period. In many ways, it is similar to a credit card. Lenders set your credit limit based on your creditworthiness (income, credit rating, etc.) and the amount of your outstanding debt.

Lastly, there are also no equity loans, also referred to as 125 second mortgage loans, which allow homeowners with little or no equity to borrow up to 125% of the current appraised value of their home.

Second mortgages can have either a fixed interest rate (a set interest rate) or an adjustable rate (ARM). However, a HELOC is typically only available with a variable interest rate. A variable rate is based on a publicly available index, such as the published prime rate.

Be aware, when you take out a home equity line of credit, you may have to pay many of the same expenses as when you financed your original mortgage including a title search, appraisal fees, and points; which add to the overall cost of your loan. However, in many cases the interests on home equity loans is tax deductible.

Rebecca is a respected copywriter has created several helpful refinance loan articles directed towards homeowners from California to Maryland. You can read more mortgage related articles at Nationwide Second Mortgage and learn more about refinancing 2nd mortgages and lines of credit.
To get more free second mortgage loan tips, please visit Second Mortgage Loans.
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