What is a second mortgage?

A second mortgage is basically taking out a second loan on top of the existing loan on your home. This loan is secured with the property for collateral. If for example the value of your home is $200 000, but you still owe $140 000 on the loan, then the $60 000 difference is known as your equity. When borrowing against the $60 000, you would then be taking out a second mortgage.

Why take out a second mortgage?

People take out a second mortgage for various reasons. They want to finance home improvements, purchase a second home, consolidate other debt for a lower interest rate, purchase a new car or pay for university tuition. Whatever the reason may be for taking out a second mortgage, first make sure there is a way of recouping the money. It is especially not wise to spend a vast amount of money on a car when it already starts losing value the moment you drive out of the dealership. It makes more sense investing in a business.

Refinance is an option

Before you decide to apply for a second mortgage, first consider refinancing. Firstly, taking out a second mortgage usually implies a higher interest rate. Rather keep your current rate or try and refinance for a lower one. Secondly, sales people get a lot of commission out of second mortgage transaction. Lastly, when choosing to refinance, you keep some equity in your home. And if there is really an emergency you, still have an exit door. But, if the prices of houses fall the value of your house is down, you could end up with negative equity and even more debt.

What to look out for

The interest rate of a second mortgage tends to be higher than the primary mortgage, due to the fact that if any problems occur, payment would first be made to the first mortgage.

Companies also charge a lending fee, also known as points. One point is equal to one percent. For example, if you are borrowing $500 000 with a lending fee of 10 points, you will pay $50 000 in points. The points differ from one company to another; therefore I recommend shopping around before making a final decision.

Be aware of balloon payments where payment starts low, but increases very quickly. Rather take the fixed rate option.

Lastly, dont forget the additional closing costs such as, appraisal fees, application costs etc. If you arent capable of paying these fees, you may not be able to take out that second mortgage on your property.

If you are considering applying for a second mortgage, please think it through very carefully and consider all your options before making a final decision on taking out a second mortgage application.

Peter Owen owns a number of properties and helps new home owners and investors reach their property goals. You are welcome to follow these links to apply for a second mortgage. Its free. Second Mortgage or Property Refinance

A mortgage is a serious business partnership between you and your chosen lending institution to finance the home while you pay the outstanding funds back. Mortgages come in all different shapes, sizes and interest rates, so make sure you’re informed of all of the different types before you sit down to negotiate with your lending institution to buy your Alabama real estate.

The first type of mortgage and arguably the most popular and traditional is a Fixed Rate Mortgage. Fixed Rate Mortgages charges you a certain percentage of interest in exchange for putting up the funds to purchase the property.

Available in different terms such as ten year, fifteen year, twenty year and so on, Fixed Rate Mortgages are a good choice for those individuals who expect to stay in their property for an extended period of time and prefer the stability of a traditional mortgage.

Interest Only Mortgages are exactly how they sound. Rather than paying on both the principal and the interest incurred on the mortgage, homeowners only pay the interest on the loan. This effectively means the loan is never fully paid off, it can be a valuable tool for those buying a property as an investment, or a property that they plan on selling fairly soon after the purchase.

ARM Mortgages are Adjustable Rates. This means that the interest rate for the mortgage will fluctuate with economy and the interest rate index. This means sometimes the interest rate and therefore payment could be much lower than others, but beware of those times that the interest rate goes higher, as you will be responsible for paying the loan back at whatever the current interest rate is, whether that is 6% or 15%.

Balloon Mortgages are unique because they have a set payment per month during the term of the loan, which may be lower than most conventional mortgage payments. However, at the end of the mortgage term, a balloon payment for the entire remaining balance is required to satisfy the loan.

The end of the term may be when your agreement ends, or when you plan to sell your Alabama real estate, so it pays to be aware of your balloon payment amount.

RE/MAX of Alabama (remax-alabama.com) is a real estate brokerage that specializes in Alabama real estate. Art Gib is a freelance writer.

As a newcomer, you must know a few basic features of adjustable rate mortgages before signing any loan papers. The initial interest rate on an ARM will remain the same for a limited period of time, which may vary from 1 month to 5 years. The adjustment period is the scheduled time when the interest rates remain unchanged. It is after this period that the rates are reset and monthly installments are recalculated. A mortgage loan with an adjustment period of 1 year is called a 1 year ARM, with 3 years it is called as 3 year ARM and so on.

The most important features to be considered are the index rate and the margin. It’s important to know at the start about the index rate used for your loan. The most commonly used indexes are Constant Maturity Treasury (CMT), 12-month treasury average index (MTA), London Interbank Offered Rate (LIBOR), and Cost of funds index (COFI). It would be wise to study about the fluctuations of index rates in the past as a change in index rates will definitely affect your monthly payments. The lenders add a few percentage points to the index rate to calculate the interest rate on an ARM. The added amount is called the margin, which usually differs from one lender to the other.

The interest rate cap is the beneficial feature that limits the interest rates. You have the option of selecting periodic caps or overall caps according to your requirement. To avoid more debt you need to be very careful of the negative amortization feature. This feature allows the lender to add the unpaid amount back to the loan. Also, discuss the full terms in detail and don’t forget to get information about any prepayment penalties. Usually, a penalty is imposed if you decide to payoff the loan early.

This is basic information about how adjustable rate mortgages work. If you feel that you can handle an ARM loan then go for it. If not, explore other types of loans to avoid any trouble in the future. If you do decide that an ARM loan is right for you, make sure that you understand each and every aspect of the loan.

Are You In Trouble With Your Current Mortgage? Bill Morin offers FREE CONSULTATION for any homeowner struggling with their mortgage payment at:
NoMortgageStress.com

Their official announcement came out at 5:00 tonight stating that any loans in their pipeline must close by November 26, 2008 or the loans would have to be changed to the government Home Equity Conversion Mortgage (HECM or Heck-um) reverse mortgage program.

This comes as no surprise at a time when credit is so tight and the jumbo product is not readily marketable in the secondary mortgage market.

There are rumblings that other lenders may come out with other programs in the not too distant future, and in fact, this last remaining lender stated in their announcement that this is not an elimination of their program but rather a suspension.

However, the last few announcements from other lenders also cited temporary suspensions and none have yet to re-emerge.

What does this mean to senior homeowners with larger, more expensive homes, it means that for the time being if they are interested in a reverse mortgage, the HUD HECM is about the only game in town.

When H. R. 3221 passed, there was quite a buzz that the limits may go to $625,500 or at least that amount in high cost areas (which would have represented a sizable increase in high cost areas) but when HUD finally announced the actual limits, the nationwide limit for most of the United States came in at $417,000.

This helps many homeowners in areas that previously had lower limits but they were owners of more expensive homes, but it didn’t do too much for seniors in those high cost areas who owned properties valued at $625,500 and above who were previously short to close on the old limit of $362,790 the difference just wasn’t great enough.

This turn of events comes as many seniors have seen the values of their portfolios dive in the past 15 months and are now looking for some help that they may have felt they did not need before.

So what should senior borrowers do? The future is never certain. If the HUD HECM does net enough for the needs of the household, then that program should always be available.

Although it is never advisable to think of a reverse mortgage as a temporary solution, I have already spoken to two borrowers who have asked if they could get a HUD HECM and then if a suitable jumbo program does re-emerge, they wanted to know if they could refinance their HECM mortgage.

The idea behind a reverse mortgage is that you never have to make a payment for life for as long as you live in that property and with the costs associated with the program, it is not wise to think of reverse mortgages as temporary solutions.

However, for some borrowers with an immediate need and nowhere else to turn, it was either take what was available now and then look at other options later on if/when they became available, sell now at a reduced price for a quick sale or lose their homes.

The last borrower with whom I spoke felt as the though the costs for a reverse mortgage were only a fraction of what he would lose by selling in this market and the benefit received, even if he had to get another reverse mortgage later and paid the fees of a proprietary reverse mortgage then, he felt he would be much better off than taking the loss of the value in today’s market.

So are Jumbo Reverse Mortgages extinct?

I really don’t think so but for the time being Jumbo Reverse Mortgages are unavailable and barring a very deep pockets investor with a very large appetite for this product, it will take a strong improvement in the secondary market before the Jumbo Reverse Mortgages are readily available once again.

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
Reverse Mortgage Lenders
Reverse Mortgage Calculator
Reverse Mortgage Programs

The HECM or Heck-um as you may hear it called, is the government insured reverse mortgage program offered by lenders and insured by the Federal Housing Administration.

Most Reverse Mortgage borrowers have chosen the adjustable rate option for the simple fact that the fixed rates have historically been quite a bit higher than the adjustable rates, the borrowers qualified for less money with fixed rates and since the borrowers have to take a full draw on the fixed rate loans, it just did not make sense for many senior borrowers.

It is finally time for senior borrowers to look at the fixed rates as a viable option.

The fixed rate option for the HUD HECM Reverse Mortgage for the week of October 28, 2008 is down to 5.68% (this is the Initial Interest Rate and the Effective Rate on the fixed program since there are no indices or margins to consider).

This means that when you compare this to an adjustable HECM on the Constant Maturity Treasury with a 1.75% margin, the fixed rate, will never increase and the rate is at 5.68% versus the adjustable option which can increase.

With the adjustable rate, the borrower’s eligibility is based not on the Initial Rate of 3.41% but rather on Expected Rate which is based on the 10 year CMT plus the margin and that rate today is 5.49%.

In other words, the amount the borrower will receive under the two options is extremely similar with today’s fixed rates instead of the large disparity that fixed rate borrowers have always seen in the past.

What does this mean for senior borrowers? It means that they have a better opportunity now to obtain a low fixed rate Reverse Mortgage than at any time.

Also, since the rate is fixed, it will never go up even if the interest rates rise in the future. This means your equity will not erode as fast if rates do rise.

If the rates go down in the future, the fixed rate will not change with those changes either, but the adjustables have a ceiling, or cap on the rate of 10% above the initial rate so the interest that accrues on the adjustable rate reverse mortgages could go up dramatically if the rates rise in the future.

Historically, adjustable rates have not been a bad choice either, but for the next few years in this very volatile economy, no one knows where rates are headed.

The other consideration with a fixed rate reverse mortgage loan is payment options.

On the adjustable reverse’s, you can get a lump sum payment (that is all your money up front); a line of credit to use when you want that grows on the portion that you don’t use; a monthly payment for a set period of time or for life; or a combination of any of these terms (in other words, you could take cash payment now AND keep some back for a line of credit for when you need it AND get a monthly payment).

However, the only option available on the fixed rate is the one time distribution at the initial funding. If you are paying off an existing mortgage and need it all up front, this would not be a problem and the fixed rate is an excellent option, especially now.

If you wanted to get a line of credit or monthly payments, they you still need to look into the adjustable rate options.

So as is the case with reverse mortgages in general, education and knowing what your needs are and what will fill those needs is the key to deciding what’s best for you. A fixed rate is something that many borrowers like the sound of but shied away from as soon as they saw that they received a lot less money under this option.

If this is the case for you and a one-time distribution works for your circumstances, now is the time to reconsider the fixed rate option. The rate is not locked until the lender is ready to draw the loan documents so it is not like a forward mortgage, you cannot lock in a rate for 30 days up front.

Nonetheless, if a fixed rate reverse mortgage sounds good to you, then there is no time like the present to take a hard look at this opportunity with the rates being down.

Michael G. Branson (CEO All Reverse Mortgage Company)is a Mortgage Broker who has over 31 years of mortgage banking experience. Toll Free (888) 801-2762
Fixed Rate Reverse Mortgages
Fixed Rate Reverse Mortgage Calculator
Fixed Rate Reverse Mortgage Programs