Helping REALTORS put More Buyers in Homes!

WHAT IS A SECOND MORTGAGE?

A second Mortgage is a lien taken out against a property that already has a home loan. The equity you have in your home is valuable, but unlike most liquid assets like cash, it isn’t typically something you can immediately utilize. A second mortgage, however, allows you to use your home’s equity and put it to work. Instead of having that money tied up in your home, it’s available for expenses you have right now.

  • Getting a new second mortgage is different from refinancing an existing mortgage loan. When you take out a second mortgage, you add an entirely new mortgage payment to your list of monthly obligations. You must pay your original mortgage and another payment to the second lender. On the other hand, when you refinance, you pay off your original loan and replace it with a new mortgage loan, and you make that monthly payment.

  • There are two major types of second mortgages you can choose from: a home equity loan or a home equity line of credit (HELOC).

    HOME EQUITY LOAN

    A home equity loan allows you to take a lump-sum amount from your equity. When you take out a home equity loan, the second mortgage provider gives you a percentage of your equity in cash. In exchange, this lender gets a second lien on your property. You pay the loan back monthly with interest, just like your original mortgage. Most home equity loan terms range from 5 to 30 years, meaning you pay them back over that time.

    HOME EQUITY LINE OF CREDIT

    Home equity lines of credit, or HELOCs, don’t give you money just in one lump sum. Instead, they work more like credit cards. Your lender approves you for a line of credit based on the equity you have in your home and other factors. Then, you can borrow against the credit the lender extends to you.

    You may receive special checks or a card to make purchases. Like a credit card, HELOCs use a revolving balance. This feature means you can use the money on your credit line multiple times as long as you pay it back. HELOCs generally have a “draw period,” during which you can use your available funds, pay down the balance, and use it again. After the draw perios ends, the outstanding balance is repaid on a monthly amortized basis. Minimum monthly payments will apply to outstanding balances. You must make minimum monthly payments during your draw period as you do on a credit card.