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How
Does a Second Mortgage Work?
A second mortgage is just
like a home equity loan,
except the loan to value can
be higher. The
amount available can vary
depending on the individual
lender guidelines and your
credit scores.
Placed
in second position on the
title of your home, a second
mortgage is a fixed rate,
fully amortized mortgage,
which does not affect the
terms of your existing first
mortgage.
Lenders typically off a
choice of terms that range
from 5 to 20 years for the
repayment.
Minimum
loan amounts can be about
$20,000. Any existing second
mortgage must be paid with a
new loan.
Accessing
your home equity with a
second mortgage can provide
cash that can be used for
any reason. Some common uses
include buying home
furnishings, a vehicle,
school expenses, business
expenses, or paying debts,
medical bills, personal
loans, or making home
improvements.
The interest portion of a
second mortgage may be tax
deductible up to maximum
$100,000 loan amount, or the
current value of your home,
whichever is less. Check
with your tax advisor.
For
homeowners with little or no
home equity, some lenders
offer mortgage programs that
will exceed the value of
your home. While this type
of loan can serve a good
purpose, keep in mind the
risk involved, because if
you sell your home, there
will not be enough equity to
pay off the mortgage.
Also,
as a rule of thumb, the
higher your loan to value
is, the higher your interest
rate will be.
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