Second mortgage is usually a loan taken after the first mortgage which are usually taken to pay the debts, improve financially, to make payments on first mortgage, to make house repairs, education and medical expenses and to avoid private mortgage insurance DC Fawcett Real Estate .
It is usually characterized by higher rate of interest than first mortgage and amount that is allowed to borrow is based on home equity.
The time period of second mortgage ranges from one year to 20 years, when the term is shorter; the monthly payments are quite high.
They are of two types namely fixed rate and home equity line of credit (HELOC) and investors prefer latter because the rate of interest can be fixed for certain period of time for the corresponding second mortgage value and then the rate can be adjusted for remaining period of time.
This scheme has maximum borrowing limit where the borrowers are allowed to withdraw money for the entire lifetime of the loan.
Eligibility for the second mortgage is same as the first mortgage where a new home appraisal is required as well as the duty of the new lender is to check for the borrower‘s financial status whether to finance the loan or not. The other factors to be checked are low debts, employment history of the borrower and equity of the first mortgage.
Approaches of getting second mortgage:
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Bank
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Mortgage broker
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Online lender
Benefits of using second mortgage:
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Borrowing large amount
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Low interest rates compared to personal loans
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Tax deductions are possible
DC Fawcett reviews states the following drawbacks are encountered while availing second mortgage
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The foreclosure is possible can be done by a second lien holder when borrower fails to make monthly payments. At that point of time, the first lien holder requests the second lien to remove the entitlement of the property and goes for a settlement with the borrower. Then necessary actions can be taken by seeking the court, to make legal procedures and verdict would be borrower is bankrupt.
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There is no closing cost but it is rolled into cost of the loan, so the borrower anyway pays the amount in other way.
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When you sell off the property, the borrower should pay off second mortgage loans or transfer to a new mortgage
Second mortgage scams are of 3 types and investors should be careful enough not to fall in trap.
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Balloon payment (a repayment of the outstanding principal sum made at the end of a loan period)
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Voluntary insurance ( lenders may ask to buy a new insurance scheme which is unnecessary)
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Prepayment penalties: it is always better to prepay and finish off the loan. The penalty charges and accusation of lenders is wrong.
Conclusion:
DC Fawcett who is a renowned real estate mentor is the founder of DC Fawcett Virtual Real Estate investing club. The investors who are interested in buying second home or in process of making large investment by taking up second mortgage can have a look at his blog to know more about it.
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