What Is A 2nd Mortgage

Answering the question of what is a 2nd mortgage can help many homeowners who are strapped for cash and are looking for ways to cover debts with a loan that is not too expensive to handle within the regular monthly budget. The short answer to what is a 2nd mortgage would be a lending agreement based on the equity a homeowner already has in his property and would be subordinate to the main or first mortgage. In other words, in a worst case scenario such as a bankruptcy or loan default, the first mortgager gets his money from the sale of the property to cover the balance of the loan and the holder of the second mortgage gets whatever would be left over. A second mortgage would be the official name for a home equity loan and is looked upon by the IRS as a mortgage, allowing the homeowner the opportunity to claim the interest paid as a tax deduction. That feature sets the lending agreement apart from other types of personal loans that someone might secure.

What is a 2nd mortgage interest rate as compared with a first mortgage? The answer would be that because the lender issuing the second cash advance on the property would be subordinate to the first mortgager in terms of recovering money to a default or bankruptcy, the interest rate on a home equity loan are a little higher than a conventional property cash advance and are typically variable in configuration. These loans have payback terms from one year to as many as twenty, depending on the structure of the agreement. There are times when the holder of a home equity loan will purchase the first property cash advance when a homeowner defaults on their loan and then forecloses, leaving the second loan holder as the owner of the house. "For I say, through the grace given unto me to very man that is among you not to think of himself more highly than he ought to think; but to think soberly, according as God hath dealt to every man the measure of faith." (Romans 12:3)

What is a 2nd mortgage requirement for obtaining a home equity loan? Actually there are a number of requirements that are considered important for the deal to be made. The first would be that there be significant equity in the house. Most banks which are conservative in their financial dealings will usually take the original sale price of the house, subtract what is still owed and then lend a percentage of that remaining equity. The percentage could be as low as fifty percent or as much as seventy percent, depending on the lending institution's policies. The second requirement would be a low debt to income ratio. This is figured by adding up all the monthly payments the potential borrower has including the mortgage payment and calculating what percentage of the monthly income would be going towards debt repayment. Banks want to see a lower than forty percent ratio.

Thirdly, when answering the question of what is a 2nd mortgage requirement for securing a home equity loan, the answer would be a high credit score. The average American has a credit score of six hundred twenty. Many lenders require a credit score of at least six hundred and forty. Late credit payments, skipped payments and a high amount of open and active accounts will lower the credit score of the consumer. Finally, the last requirement of the lender would be a solid employment history. This means that the borrower will have needed to be at a job steadily for at least a year and may be more depending on the policy of the lender in question.

So what is a 2nd mortgage lender that doesn't have as high requirements for lending as a bank or credit union? The answer to that question would be a loan company that doesn't deal with depositors but rather with high risk investors that will take a chance with bad credit or poor credit customers. In the case of a loan company, the interest rates will be higher, the points paid on the loan will be increased, but a higher debt to income ratio and a lower credit score will not be scrutinized as closely. Both banks and loan companies will charge the borrower points on the home equity loan, and each point represents pone percent of the entire loan. This money would be due at the time of the loan but can be rolled into the mortgage amount to be repaid.

What is a 2nd mortgage loan advantage? The first advantage would be the ability to use money already socked away in the form of property equity for any reason under the sun. No questions are asked about the use of the money. So a vacation, a house repair, college tuition, a new car, or any of a hundred other reasons can be funded by a home equity loan. The second advantage would be that there is at least some tax breaks with this loan that no other lending agreement really offers. But before ever taking out such a lending agreement, a person should check with his/her tax advisor to see how this would affect personal tax issues.

Finally, what is a 2nd mortgage loan disadvantage? The most glaring one would be using the money for a fleeting pleasure whose glow is quickly extinguished but the payback could be for years. If a lot of pictures of a European vacation are enough to quell the monthly irritation of paying for it over a number of years or the mounting mileage on what was once a dream car which may take twenty years to repay through a home equity loan, have at it. But paying for a child's education or reroofing the house, or paying off high medical bills may make a lot of sense when the mailman delivers the bill every month. There will always be a payback for everything; just ask Judas.

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