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Last Updated on 11/30/2022 by Mark Verhoeven

Second Mortgage

The following article will cover all aspects of a Second Mortgage including: What is a Second Mortgage, How does a Second Mortgage work, types of Second Mortgages and the benefits of Second Mortgage.

Second Mortgage Definition

Second mortgage process

What exactly does a second mortgage entail? Most people take out a home loan from a lending organization that utilizes the property as security when they buy a house or property. A mortgage, or more particularly, a first mortgage, is the name given to this type of property loan. The borrower must pay back the loan in monthly installments that include both principal and interest payments. As the homeowner keeps up with their monthly payments, the home’s value increases.

Types of second mortgages

Lump Sum
Second mortgages come in two main forms, home equity loans and home equity lines of credit. A home equity loan, commonly referred to as a lump sum, is granted for the full amount at the time of loan origination. Interest rates on such loans are fixed for the entire loan term, both of which are determined when the second mortgage is initially granted. These close ended loans require borrowers to make principle-and-interest repayments on a monthly basis in a process of amortisation. The interest repayments are the costs associated with borrowing whilst the principle paid reduces the loan balance.

Line of Credit
Home equity lines of credit are open ended loans in which the amount borrowed each month may vary at the homeowner’s discretion. These loans offer flexible repayments schedules and are subject to variable interest rates that may potentially increase or decrease during the loan term. Borrowers have access to the line amount which is predetermined at the time of loan origination but are not required to draw amounts if they do not wish to. The revolving credit facility provides borrowers the flexibility of drawing down amounts only when required to avoid interest on unnecessary credit.

Benefits to a second mortgage

  • Second mortgages allow you to cash in on your home’s untapped equity.
  • HELOCs and home equity loans can be used to fund large purchases such as college or substantial renovations.
  • Second mortgages provide cheaper interest rates than private loans or credit cards.

Second mortgage vs Refinance

You have a choice in how you receive mortgage funding. A second mortgage loan and an equity loan are frequently available options. If you need a large sum of money, a home equity loan is usually the best option. Refinancing in SC, on the other hand, allows you access to a larger quantity of money if you have a large renovation project. A home equity loan, on the other hand, allows you to postpone payments until after the draw time has ended. When you refinance, you lose this flexibility of choice.
     
     

    If you have any other questions regarding Second Mortgages contact the mortgage experts at 864-397-8500 or click Mortgage Rates Today!

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