Making Sense of Second Mortgages
You may have heard it called home equity, home equity line of
credit, home improvement loan, debt consolidation loan or second
mortgage. All of these names imply the same thing, which is a
second home loan on top of your current mortgage. The difference
is that you are actually borrowing back money you have already
paid the lender.
Most people use home equity, which is the amount of your home
mortgage that you have already paid off, for home improvement
or large expenses such as college or auto purchases. Like with
your original mortgage, you are charged interest on top of principal
until you pay back the loan.
The good thing about second mortgages is that they may be tax
deductible if the loan is for your primary residence. Usually
for home loans up to $100,000 you will get a 100 percent deduction.
If your second mortgage is $35,000 or less an appraisal is probably
not required. If your loan is over this amount you may need an
appraisal. As amounts vary from one mortgage lender to another,
it is best for a borrower to carefully check the guidelines of
each and every potential lender’s guidelines. If you have
owned your home for less than a year, the purchase price may be
considered the value.
Mortgage rates are generally determined by the primary borrower’s
credit scores and the loan to value ratio. You may get a loan
up to 125 percent of value but this depends on your credit scores,
debt record and loan to value ratios. If you are worried about
your job or income looking bad, remember that some lenders do
not require verification of an in order to approve you for a loan.
A second mortgage is great for saving money. You can reduce your
interest rates and payments, convert compound interest into simple
interest and make taxes on old debts deductible.