2nd Mortgage Loans

Many people take out 2nd mortgage loans to get much-needed cash, quickly. A 2nd mortgage loan allows homeowners to borrow money by tapping into the equity in their home. The borrower uses the equity in their home as collateral. If you fail to repay the money you’ve borrowed, the lender will acquire your property. Therefore, prior to leveraging your home for cash, remember that it is a potentially risky decision that should be carefully considered.

Home Equity Loan

There are many popular types of 2nd mortgage loans. One of the most popular is called a Home Equity Loan (HEL). A HEL is a one-time payout for homeowners needing one lump sum of cash. A HEL has a fixed interest rate, meaning that the repayment amount stays the same over the life of the loan. If you sell your home, you must fully repay the home equity loan at that time.

Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) is like a traditional credit line, in that it allows borrowers to take out money multiple times over the life of the loan, until they’ve reached the spending limit. Unlike a HEL, a HELOC has an adjustable interest rate that can rise or fall, depending on current market mortgage rates. Your monthly payment also varies, as it is based on the total amount you’ve borrowed and the current interest rate. A HELOC is a good option for borrowers who have ongoing financial needs and must periodically use their line of credit to pay bills or other expenses.

Required 2nd Mortgage Documentation

When applying for a 2nd mortgage loan, you’ll need to supply certain documentation to the mortgage lender, including:

  • employment status and verification;
  • verification of income;
  • current balance of your mortgage;
  • personal information for any individual on the application;
  • current value of your home (you’re required to get your home appraised).

What Is My Second Mortgage Worth?

To figure out how much you’re able to borrow for your Home Equity Loan or Home Equity Line of Credit, simply take the current market value of your home and subtract your current mortgage balance and/or any property liens. Keep in mind that many mortgage lenders have minimum and maximum amounts for 2nd mortgage loans ($10K/$500K).

Making Use of 2nd Mortgage Loans

Money received from 2nd mortgage loans can be used in many ways. You may wish to use the money to renovate your home, pay bills, or even as a means of debt consolidation. Since the interest rates of 2nd mortgage loans are usually lower than those of credit cards and most consumer loans, many homeowners use 2nd mortgage loans to consolidate and pay off their debt with a single, cheaper monthly payment.

A Good Option for a Financially-Responsible Homeowner

Generally speaking, 2nd mortgage loans offer a great way for responsible homeowners to borrow cash at a low, tax-deductible interest rate. Speak with your lender today about which 2nd mortgage loan is right for you.