Second Mortgage Loans - Second Mortgage Home Loans

More and more lenders are offering home equity lines of credit or second mortgage closed-end loans. These type of loans may offer a sizable amount of credit, available for use when and how you please and at an interest rate that is relatively low. Furthermore, under tax law --depending on your specific situation --you may be allowed to deduct the interest because the debt is secured by your home.

A second or junior mortgage is secured by real estate but has been made by the homeowner in addition to the first mortgage and is subordinate to the first mortgage. It gives the lender a claim against the property which is second to the claim of the holder of the first mortgage.

A home equity loan or line of credit is secured by real estate. It may be placed on a property that already has a first or second mortgage, or it may be placed on a property that is free and clear. It allows the borrower to borrow against the equity of the house from time to time without re-applying for a loan.

Another type of second or junior mortgage is a closed-end loan. This traditional second mortgage loan provides you with a fixed amount of money repayable over a fixed period. This type of loan advances all funds at the time the loan is closed with no further advances. The loan can be interest following or precomputed. It is always preferable to have an interest following loan if you plan to pay the loan off before maturity.

You might consider a traditional second mortgage loan instead of a home equity line; if, for example, you need a set amount for a specific purpose, such as an addition to your home.

What To Look For On Any Second Mortgage Loan

Look carefully at the credit agreement and examine the terms and conditions of various plans including the annual percentage rate (APR), the costs you'll pay to secure the loan, and prepayment penalties. The disclosed APR will not reflect the closing costs and other fees and charges, so you will need to compare these costs among lenders, as well as the APRs.

You cannot compare APRs of home equity lines to the traditional second mortgages since the APRs are figured differently. The APR for a traditional mortgage takes into account the interest rate charged plus points and other finance charges. The APR for a home equity line is based on the periodic interest rate alone. It does not include points or other charges. You can compare the closed-end "note" rate with the line of credit APR and their other charges.