Second Mortgage and Equity Loans

By Sim Artez

When homeowners find the need for actual cash, more often than not they will find that their house have their equity all locked up. When this happens, second mortgages are often used, a kind of mortgage that can give homeowners access to the equity tied up to their houses. In addition to this, it also allows future homeowners to be able to fill any gap needed to be able to supply the downpayment needed for the new home.

A second mortgage is technically known as a loan secured by a specific property in the event that there is already a first mortgage. True to the name, it is given second priority, that is, should the second mortgage go into default, the lender will need to pay the first mortgage off first before access to the collateral is granted. This scenario makes second mortgages much riskier loans for lenders, which is why they are very cautious in approving most of these kinds of loans.

There are two kinds of second mortgages present, with each chosen depending on the needs of the borrower. The first is the HELOC, or home equity line of credit, which is a second mortgage that acts a lot like a credit card. The borrower is given the ability to issue checks against the HELOC, and the interest has to be paid every month as long as there is an outstanding balance present.

The other kind is the home equity loan, seen by most as the more traditional mortgage of the two. Unlike the HELOC, the home equity loan features a fixed rate over a longer term, which is basically a refinance risk-free equity mortgage. A home equity loan also amortizes to a zero balance during the loan's term.

Whatever option is chosen, it is important that people looking to get second mortgages to find one that is ideally suited for their own needs. A lot of companies are available to choose from, and borrowers should take enough time to look for the best one. Lastly, depending on the state or area, the terms and costs of second mortgages will be different.

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