Second Mortgages and Lines of Credit
Most homebuyers have very little trouble purchasing a home with the assistance of a mortgage. A mortgage allows them to make monthly payments toward the price of the home while enjoying the use of that home in the mean time. Mortgages make it possible for people to make the kinds of investments that will change their lives. Depending on the income and credit score of a homebuyer, the mortgage process has become fairly simple, provided that the skills of an effective mortgage broker are utilized. Some years down the road however, many homebuyers are ready to make another investment, consolidate debts, remodel the house, or consider the purchase of a new property. This is the point at which a home equity line of credit or a second mortgage should be considered.
So many home owners and buyers begin inquiring into credit lines and second mortgages without even realizing the difference between these two loans. A second mortgage is actually a completely new mortgage that is not in association with the first mortgage. It is simply the second mortgage that a particular person is applying for. This type of loan is exactly the same as the first mortgage, requiring regular monthly payments with slightly higher interest rates and lasting just as long as the average first mortgage. Most people who have been through the mortgage process once before will have no trouble understanding and obtaining a secondary mortgage. Though the interest rates are somewhat higher, the fees collected on secondary mortgages are much lower, thus balancing them out to a similar cost as the first mortgage. The inability to repay a second mortgage will result in a foreclosure on the new investment, but will not impact the first mortgage.
A home equity line of credit involves the lender’s agreement to loan a maximum amount within an agreed period, using the homeowner’s equity as collateral for the loan. This line of credit allows the borrower to take only the amount of money that they need as they proceed in an investment or remodeling endeavor. This adds a great amount of flexibility to the use of the loan. There is also a monthly payment required on an equity line of credit, but these are most commonly interest only payments, then after 5 to 25 years, there will be a “draw period” when the borrowed money must be paid back. In the short term, a line of credit is great because the monthly payments are so much lower, but you will also pay out more interest over time. The main down side to a home equity credit line is that failure to repay the loan will result in foreclosure on the home used for collateral.
Both home equity lines of credit and second mortgages can then be refinanced or consolidated with the first mortgage or other debts to come up with one easy monthly payment. They are both effective ways of providing people with the investment capital they need for many types of investments, projects, or even debt consolidation once they have already bought a home.
About the Author: Peter Dellane is the President of Ability Mortgage Group, LLC, A leading Maryland Mortgage broker company offering low costs zero point mortgages. For more information on Mortgage Maryland rates and programs please visit www.marylandsmortgage.com.
So many home owners and buyers begin inquiring into credit lines and second mortgages without even realizing the difference between these two loans. A second mortgage is actually a completely new mortgage that is not in association with the first mortgage. It is simply the second mortgage that a particular person is applying for. This type of loan is exactly the same as the first mortgage, requiring regular monthly payments with slightly higher interest rates and lasting just as long as the average first mortgage. Most people who have been through the mortgage process once before will have no trouble understanding and obtaining a secondary mortgage. Though the interest rates are somewhat higher, the fees collected on secondary mortgages are much lower, thus balancing them out to a similar cost as the first mortgage. The inability to repay a second mortgage will result in a foreclosure on the new investment, but will not impact the first mortgage.
A home equity line of credit involves the lender’s agreement to loan a maximum amount within an agreed period, using the homeowner’s equity as collateral for the loan. This line of credit allows the borrower to take only the amount of money that they need as they proceed in an investment or remodeling endeavor. This adds a great amount of flexibility to the use of the loan. There is also a monthly payment required on an equity line of credit, but these are most commonly interest only payments, then after 5 to 25 years, there will be a “draw period” when the borrowed money must be paid back. In the short term, a line of credit is great because the monthly payments are so much lower, but you will also pay out more interest over time. The main down side to a home equity credit line is that failure to repay the loan will result in foreclosure on the home used for collateral.
Both home equity lines of credit and second mortgages can then be refinanced or consolidated with the first mortgage or other debts to come up with one easy monthly payment. They are both effective ways of providing people with the investment capital they need for many types of investments, projects, or even debt consolidation once they have already bought a home.
About the Author: Peter Dellane is the President of Ability Mortgage Group, LLC, A leading Maryland Mortgage broker company offering low costs zero point mortgages. For more information on Mortgage Maryland rates and programs please visit www.marylandsmortgage.com.
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