Second Mortgages become interesting Cash Out Loan Alternatives

With all of the interest rate talk these days at the water cooler, it seems that everyone knows where the interest rates are going except for the Federal Reserve. Of course citizen are speculating, and if they do predict where the interest rates are headed, they legitimately could not tell you when they are rising or dropping.

As most of you have realized by now, the first mortgage rates may not go back down to the 2004 levels when the 30 year fixed was in the low 5's. Over the last 3 years, most homeowners have refinanced to an interest rate they are very comfortable with.

As the housing store shifts, the inquire for money is still great, but citizen will be taking out second mortgages to get cash and concentrate revolving debt. Second mortgages, also called home equity loans have come to be favorite alternative loans that do not need homeowners to refinance their current home loan. As you can imagine, many homeowners would rather leave their low interest 1st mortgage untouched and naturally take out a second mortgage on the asset for incidental cash like make home improvements or financing a second home.

With the store changing, it is leading for consumers to understand how home equity loans work. 2nd mortgages are liens that are taken out against your home for purchase, or cash out refinancing. Second mortgages do use your home's equity, so you want to be thrifty and pragmatic when leveraging your home.

Home Equity loans 125% - These liens are high Ltv 2nd mortgages that all you to borrow against your home's future value. It is hard to believe, but no mortgage guarnatee is required! The interest rate is fixed and the most coarse use of funds for these loans is debt consolidation.

Home Equity Line of reputation 100% - Home equity lines are more revolving reputation that carries a variable interest rate based on the Fed's Prime index reported in the Wall road Journal. You only pay interest when you use funds from the line, and only the interest is due each month during the draw period. The most coarse use of funds with a Heloc is for financing home improvements.

Which ever second mortgage appeals to you, remember to look at the closing costs, interest rate, and either or not there is a pre-payment penalty. When you are talking with some brokers or lenders the best way to collate the loans is to view the "Good Faith Estimates" which will be in case,granted with the loan disclosures. If you don't qualify for a 2nd lien, reconsider a Fha mortgage loan that offers cash out and refinancing up to 95%.

Second Mortgages become interesting Cash Out Loan Alternatives

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Buy To Let Mortgages Face Negative Equity

Tens of thousands of property owners may be at risk of negative equity this year if the prediction of falling house prices comes true. Leading organisations are estimating that property prices will fall by about five percent while the year which leaves practically no margin for error for the thousands of would-be property investors who bought properties with 95% buy-to-let mortgages while the past few years.

The buy-to-let property boom of the early 2000s has made hundreds of thousands of investors asset rich due to short term increases on property prices. Unfortunately for many new investors who jumped on the bandwagon at the tail end of the boom, thousands of property owners now face ruin. This is because lenders were still contribution buy-to-let mortgages with high loan to value ratios to amateur investors despite the fact the property market was cooling.

Loan-to-Value Ratio

Securing buy-to-let mortgages against properties with high loan to value ratios was less of a risk five years ago. This is because property prices were skyrocketing, meaning that the margin in the middle of the value of the mortgage and the value of the property would swiftly grow due to natural appreciation. This feature of the property market has since disappeared. Lenders of buy-to-let mortgages, however, prolonged to approve high loan to value loans, such as 95% mortgages, despite the fact that property prices were no longer growing at high rates.

This has lead to a situation in which thousands of property investors have purchased properties within the past year or two with 95% buy-to-let mortgages. Instead of their properties expanding in value, as they had done while the preceding years, they have whether remained stagnant or decreased. This means that the 5% equity held in the properties on the date of buy whether remains the same or has eroded. If the value of a property falls below the excellent equilibrium of a mortgage then the property goes into negative equity.

This is the situation faced by many property owners this year as house prices begin to decline as part of a wider revising in the world property market. Prices had been pushed to description levels while the past few years due to easy passage to reputation and low interest rates. Buy-to-let investing also became a fad and it seemed that every person was buying speculation property. Although the property market is not in freefall it is safe to say that the bubble that has built up over the past few years has ultimately burst.

Some speculation property owners have even exaggerated their problems by funding the 5% deposit required with added borrowings from reputation cards and personal loans. This has exacerbated the problem as the properties they own are effectively financed to 100% of their value - and this value may be declining. Therefore, even if they are able to sell their properties and redeem their buy-to-let mortgages they may be stuck with thousands of pounds worth of unsecured borrowings to pay off.

Only time will tell what happens to these borrowers over the next few years. The telling factors will be interest rates and property values. If interest rates climb too high then the buy-to-let mortgages and other borrowings may become unaffordable. If property prices decline then many thousands of would-be property millionaires will fall into negative equity and will not be able to pay off the equilibrium of their buy-to-let mortgages - even if they are lucky adequate to sell their properties.

Buy To Let Mortgages Face Negative Equity

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Refinance or Second Mortgage? Combining 1st & 2nd Mortgages Together

I had a new conversation with one of my clients, Mr. Jackson, who is a finance savvy homeowner from Virginia Beach, Va. He asked me an enthralling examine that I wanted to share with you, because it seems to be a tasteless dilemma for homeowners in many states.

What the best explication for refinancing my first & second mortgages? Mr. Jackson elaborated, "I have an 6% 1st mortgage with a balance of 5,000, and a second mortgage at 14% with a balance of ,500. We did a 125% second mortgage to pay off some credit cards. If I add the loans together, we exceeded our homes equity, as the property was appraised at 0,000. We are satisfied with the 1st mortgage rate, but we wanted to lower the rate on the second mortgage. A few years have passed since we took out the 2nd loan back in 2002, and importantly our home's value has increased to about 5,000." He continued, "Should I refinance the second by itself and try and get a lower rate, or should I refinance the 1st and 2nd mortgage together for one mortgage payment?"

Mortgage Refinance 125% Ltv 2011

Wow, what a good question. I praised my client for consolidating his credit card debts with a fixed rate loan. He was very satisfied with his monthly savings with the 125% loan and because it exceeded his property value, he did not reconsider refinancing that loan until neighbor hood housing costs went up significantly. Now that his house has increased its value it appears that his combined loan to value was under 100%. His refinancing options come to be much greater with the increased equity from the home appreciation.

I asked Mr. Jackson a few questions so I could help him find the best solution. How is your credit? Do you know your credit score? Is there a pre-payment penalty on your second mortgage?
Does your first mortgage have a fixed interest rate?
Jackson answered quickly: 689 credit score no pre-payment penalty after 3 years, and his 1st mortgage is at 6% with a 30 year fixed rate.

Combining first and second mortgages into one loan can be challenging, but sometimes it makes sense financially as well as being practical. In Jackson's case, the best selection was to leave his first mortgage alone, and plainly refinance the 125% home equity loan with a 95- 100% second mortgage to lower his monthly payments. So Mr. Jackson was approved for a fixed rate 2nd mortgage. He had inquired about a home equity line of credit, but I reminded him that they have adjustable rates that have been increasing rapidly in the last few years. Since he was paying off long term debt, a fixed rate loan with simple interest was the only way to go. I was excited for Mr. Jackson, because we were able to get him approved for a loan with no pre-payment penalty and we were able to reduce the windup costs, because of his credit score.

Depending on the home equity program, 2nd mortgages may cost you a few thousand dollars in windup costs. Most windup costs are tax deductible and getting the bottom possible rate pays off in the long run. For example, With a 15 year term, you would recover the cost of the second mortgage within a few years, so if you can get 1% or more good paying some windup costs, it would be good than a home equity loan with no points. The lending reality is that most no point no fee 2nd mortgages need credit scores over 700, and the combined loan to value will most likely need to be under 90%.

If you are able to get the second mortgage with no penalty for early payoff, then get that highlight with your loan, because if your home's value continues to increase, then in a year or two, you may find yourself ready to refinance because you are back at the golden 80% combined loan to value. If 1st mortgage rates happen to drop again, then you may find yourself in a great position to ultimately combine both loans together. If the 1st mortgage rates dropped to the 6% zone, and you still plan to live in your home for many years to come then make the move to refinance. It all comes down to what the rate are doing, when the time comes.

Refinance or Second Mortgage? Combining 1st & 2nd Mortgages Together

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