Our rate table lists current home equity offers in your area, which you can use to find a local lender or compare against other loan options. From the [loan type] select box you can choose between HELOCs and home equity loans of a 5, 10, 15, 20 or 30 year duration.
A second mortgage is an additional loan that can be acquired after the first. The same assets that were used to secure the first, must be used to secure the second. Generally, the interest rate on a second mortgage is higher than that of a first. Equity determines the quantity and type of second mortgage an individual qualifies for.
Obtaining a second mortgage requires the same process as obtaining a first mortgage. Lenders will require all the same paperwork, as well as a new appraisal of the individual’s assets. The new lender will require personal information, including asset values, in order to determine whether or not to offer a loan.
There are two types of second mortgages: fixed and variable rate. The interest on a fixed rate loan will remain the same throughout the life of the loan. Fixed rate loans usually last longer than variable rate loans, about 15 to 30 years. The variable or adjustable rate mortgages (ARMs) have interest rates that can be periodically changed by the lender. Adjustable rates generally have shorter terms, lasting between one and 20 years, with periodic rate resets.
Individuals who are considering a variable rate mortgage need to take a number of factors into consideration before making their decision. It is important to discuss the following topics with the mortgage company:
It is important to get specific information regarding each of these factors. Second mortgages should never be signed without all of the above information. It is best to get the information in writing, this prevents lenders misleading or misconstruing information.
The mortgage company should also be able to explain how their rates are determined and what may cause them to increase throughout the life of the loan. It is important to ensure that interest rate changes are determined on a specific set of criteria. This information should also be obtained in writing.
Either type of mortgage rate will result in a loan that is comparable or slightly more expensive than first mortgages. The second mortgage may be slightly more expensive because the lender understands that the first loan was already foreclosed on. This means that the second lender is absorbing more risk and may be warier of offering a mortgage.
Should You Consider a Piggyback Second Mortgage?
Compare your options: calculate PMI vs a second mortgage.
Second mortgages usually have terms of one to 30 years with 10 and 15 years being the most common durations. Shorter terms will have higher payments and longer terms will have lower payments. HELOCs typically have a 10 to 15 year draw period where it is a line that revolves similarly to a credit card, followed by a fixed 10-year amortizing repayment period. It is important to calculate exactly how much can be afforded each month. This is best determined by assessing how much personal income can be allotted to the loan each month. This number, in combination with the interest rate, should be used to determine the length of loan that is affordable.
Generally, adjustable rate loans have more flexible terms than fixed rate loans. The fixed loans may be offered only in 15 and 30 year terms, while variable rate loans may be offered in any number of years between one and 20. The lender will help determine which option is ideal taking income levels and loan amounts into consideration.
There are virtually unlimited numbers of lenders who supply second mortgages. It is important that individuals compare the costs associated with a number of potential lenders. For most people, lenders who offer the lowest interest rates are the best choice as their second mortgage supplier. Although, there are a few other factors that can be taken into consideration.
It is possible to save money by obtaining a second mortgage with your existing mortgage lender. They may wave fees associated with paperwork or other procedural requirements. This is not true of all mortgage lenders. It is best to call the mortgage company and request farther information about their second mortgage procedures before assuming the costs will be reduced.
Another place to look for a second mortgage is through banks which individuals are already involved in. The paperwork and procedures which are required to obtain second mortgages can be easier through banks that individual’s already have ties to.
There are really three options that most people will look to when seeking to use their equity:
Cash-out Refinance
A cash-out refinance, is really a refinancing of your existing mortgage with an additional lump sum added in, to be spent as you see fit. This can be viewed most simply as one loan replacing another.
Home Equity Loan
A home equity loan, is a lump sum payment as well, but it does not include your mortgage payment – it is in addition to your mortgage, so is sometimes referred to as a second mortgage. The first mortgage has a senior position in the capital structure, but if you default on either loan you could still lose the house.
Home Equity Line of Credit
A HELOC is similar to a home equity loan in terms of working alongside your existing first mortgage, but it acts more like a credit card, with a draw period, and a repayment period and is one of the more popular options with today’s homeowners.
Each option can be strategic, depending on your own circumstances – so understanding more about why you’d choose one over the other can help you to focus your research.
| Loan Type | Home Equity Loans | HELOC | Cash Out Refi |
|---|---|---|---|
| Interest Rate | Fixed | Adjustable (in most cases) | Fixed |
| Draw Money | Lump Sum | As needed, throughout draw period | Lump Sum |
| Tax Deductible Interest | No | No | Yes |
| Interest Only Payment | No | Yes | No |
| Interest On | Loan Amount | Amount Drawn | Loan Amount |
If interest rates have fallen significantly and you have siginficant equity in your home it might make more sense to do a cash-out refinance instead of obtaining a second mortgage. First mortgages have lower interest rates than second mortgages.
The following table shows current New York 30-year mortgage refinance rates. You can use the menus to select other loan durations, alter the loan amount, set your home value, select purchase loans, or change your location.
Due to the economic downturn, the interest rates on first and second mortgages are currently at an all time loan. This year may be a good time to obtain a second mortgage. It is important, however, to take all financial factors into consideration before attempting to obtain a second mortgage.
It is best to follow the market trends before obtaining a second loan. Mortgage rates can be variable, but tracking the market trends can help individuals obtain second mortgages during times of low interest rates. It’s important to keep an eye out for what lenders are charging and those which seem to be offering the lowest rates. These observations will help individuals determine the best mortgage companies and the times in which these companies offer the lowest interest rates.
It is important to note that variable rate mortgages may change according to economic changes. It is important to fully understand what factors contribute to the changes in interest rate. If economic conditions can effect the variable rate loans, obtaining one during an economic downturn may not necessarily result in lower interest rates in the long run.
Factors that can effect the interest rate of a second mortgage include the demand for loans and national economic conditions. In periods of economic downturn, second mortgage rates fall low and can be obtained more readily. Individuals can take advantage of this by building up a money supply during economic upturns and obtaining second mortgages during downturns.
It is best to obtain a second mortgage when personal finances allow it. If a second mortgage would be difficult to afford, it may be best to wait. Individuals should be able to cover the cost of the first and second mortgage, as well as all other monthly payments, before obtaining a second loan.
Second mortgages are beneficial to individuals who need a significant amount of money and have no other means of obtaining it. Individuals who will benefit the most from second mortgages are those who are financially stable, but cannot use credit cards or bank accounts to obtain the money they desire.
Sometimes second mortgages are necessary for those who are not financially stable, but have no other means of obtaining money. This is not the ideal situation to obtain a second mortgage because there is significant risk of the individual being incapable of paying back the loan. Sometimes, however, it cannot be avoided.
There are a number of situations where a second mortgage may be beneficial. These include:
In addition to the interest rate, there are a number of costs associated with second mortgages, these include:
The cost of these fees will be similar to those associated with first mortgages. The most important hidden cost to consider is the lending fees.
Lending fees are calculated on a points based system. One point is equal to one percent of the loan amount. The cost of lending fees varies widely between mortgage companies. It is important to meet with a number of lenders in order to find the lowest lending fees.
Individuals who are obtaining a second mortgage should request written documentation of the lending fees. Some areas have state mandated caps on lending fees, but others do not. The state banking commissioner can provide information on lending fee limits.
It is important that the lending fee is understood and agreed upon before signing for the second mortgage. Individuals should ask to see the fee in writing and should compare it to any state limitations to ensure that the lender is following mortgage regulations.
The largest risk associated with a second mortgage is failure to pay the monthly interest rates. It is possible for an individual to lose their home if they are incapable of paying for the second mortgage. This is why it is so important to obtain affordable, low interest rates and lending terms that allow for small monthly payments. Market research, and comparison shopping should help individuals avoid the risk of losing their home.
Another risk of obtaining a second mortgage is higher interest fees. There are generally only small differences between the interest fees of first and second mortgages, but sometimes even a small increase in the interest rate can result in financial ruin. Individuals should calculate exactly how much the second mortgage will cost per month to avoid any surprises.
The various fees associated with a second mortgage is another risk. These fees can add up quickly and for those already in financial ruin, these costs could be a lot to handle.
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