Second Mortgages: Buy Them Smarter
Sometimes you build up equity in your house, cheerfully paying off the mortgage you took when you bought it, and then you run into a wall. You lose a job; someone in the family becomes catastrophically ill; you are sued by someone. Hundreds of things happen that can cause you to suddenly need a large amount of money. Or you might decide you'd like a swimming pool, or that the roof needs to be replaced, or that your growing family needs to have another bedroom and bathroom built onto the house. Or you have got to get out from under the credit card debt you've accumulated, and need cash quickly in order to do it. So how do you pay for it? By taking out a second mortgage. A second mortgage is precisely what it sounds like: a mortgage taken out on a property that already carries a mortgage. You may also have heard of them as home equity loans, home equity lines of credit, home improvement loans, or debt consolidation loans. All these loans are the same horse by a different name; they are secured by a mortgage on your house. How does paying more money save me money? Second mortgages probably will offer a more favorable interest rate than your massive credit card debt; as opposed to rates that run as high as 20%, rates for second mortgages are closer to market rates, which may be as low as 5%. And the interest on second mortgages taken out on your primary residence are tax deductible - try deducting the interest on your credit cards! In addition, second mortgage interest can be converted into simple interest as opposed to compound interest (which is standard for credit cards); this alone can save you thousands of dollars and enable you to pay off your debt much more easily. How do I get a second mortgage? In most cases, you can get a second mortgage up to $35,000 of your home's equity without an appraisal. If you need more than that, individual lenders may require an appraisal to ensure they are loaning money they will eventually be able to recoup. Mortgage rates are based on your credit score and the value of the loan; and you may be able to get a second mortgage without verification of your income. It's easier to get a second mortgage than many other traditional types of loans because you are, at least in theory, planning to use the money from the second mortgage to pay down the more expensive debt you have incurred. People with credit problems, too much existing debt, or records of bankruptcy or foreclosure on their credit reports may still be eligible for second mortgages, though at a sub-prime rate; even a sub-prime rate, however, is cheaper than paying most credit card debt. You can find second mortgages in the same way you found your first mortgage: through banks, through mortgage brokers, and on the internet. In today's low interest rate economy, first and second mortgages are flourishing.
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