SECOND MORTGAGES

A second commercial mortgage is a loan taken out by a borrower in addition to their first commercial mortgage loan. These loans typically include a term of at least five years and interest-only payments.

Having two commercial mortgage loans can be expensive, so it is important you understand the reasoning behind taking out a second mortgage loan and are sure you can afford payments before you decide to do so. A commercial mortgage calculator is a great tool you can use to help you estimate your budget.

A piggyback loan, also known as a second trust loan, is a form of home financing that buyers use to supplement their down payment and first mortgage loan. A piggyback mortgage loan is essentially a second smaller loan used by buyers who do not have enough money for a 20 percent down payment but also want to avoid paying private mortgage insurance.

Piggyback loans often times carry a higher interest rate because the borrower is taking on so much debt to finance their home purchase. Piggyback mortgages can also be used by home buyers who want to purchase a bigger or more expensive home.

Photo Credit: James Thompson

A fixed rate second mortgage is a subordinate home loan that is secured against your property with a fixed interest rate. Having a second mortgage means that should you default on your loan, your first mortgage would have priority and would be paid before any funds go toward the second mortgage.

Taking out a second mortgage is different from refinancing a current home loan. Refinancing means you have replaced your primary mortgage with a different primary mortgage. A second mortgage is a separate obligation in addition to your original loan that uses your home as collateral.

To ensure that you get the best home refinancing rate on your new mortgage it is important that you shop around. Remember every financial institution is able to take advantage of the lowered rates as it is backed by a Federal cut, not an independent promotion. Although you should expect to pay anywhere from 2%-3% of the total loan value in closing  fees, by doing your research you can cost your expenses.

For Example: Consider Janice, a first time condo shopper in the L.A. market. She bought her new home in August of 2008 and decided to take advantage of the low refinancing rates that were available. On the advice of her accountant she worked diligently to secure a loan where the fees would be repaid back by her savings in under two years.

Good news for the housing market: Defaults on first mortgages declined in the month of June. More specifically, first mortgage default rates declined to 3.3 percent for the month and 45.2 percent from a year earlier as revealed by Experian.

Second mortgage defaults saw a drop in June as well. The monthly drop was 0.03 percent while the drop from the year prior was 44.54 percent.

Experts believe that these drops represent progress as more homeowners are able to manage the cost of their mortgage loan after the recession. However, while mortgage interest rates are still at record lows, homeowners are still not going out and acquiring many new loans (Housing Wire).

Many people like to buy second homes as investment properties and rent them out for extra income. If you can afford to do so, it’s a great way to have a long-term investment as part of your assets that will continue to bring in money. After all, there are always renters looking for a place to live.

Non-Owner Occupied Home Definition

Mortgages are loans specifically for purchasing real estate dwellings where the “home” is used as collateral. Some terms as they apply specifically to mortgage loans are:

• Collateral: When a borrower opts into a mortgage loan, their new home purchase becomes the collateral, meaning if they do not repay their loan, after a stringent legal process, the home can become the property of the lender
• Conventional Mortgage Loan: A loan not guaranteed by the government
• Credit Score: Mortgage loans are probably the largest amount of money anyone can borrow in your lifetime and for that privilege, borrowers must repay the principal value with interest. The better (higher) your credit score, the lower interest rate you will be charged, thus saving you thousands of dollars over the lifetime of the loan
• Default: When borrowers do not properly repay their mortgage loans
• Interest Rate: The amount you get charged to borrow money from a financial institution for a mortgage loan
• Pre payment: The act of paying off ones mortgage loan earlier then the loans expiration date
• Principal Amount: The actual dollar amount you are borrowing to purchase the home

Mortgage loans are as basic to the Americana lifestyle as is apple pie! Owning your own house, condo, or other type of living is part of the American dream, and securing a mortgage loan is one of the only ways to finance the purchase. If you plan on buying a home for the long term, say more than ten years, experts advice that you should go for a traditional fixed rate mortgage. It has been said among many people, that “if you do not qualify for a traditional 30 year fixed-rate mortgage, then buying a house may not be for you.” There are many other variations for mortgages but for the first time home buyer, a fixed rate mortgage will mitigate any chance of unpleasant surprises.

If a second or vacation home is on your mind, yet you’re deciding whether to make a purchase with doubts, it’s time to investigate what the process entails. Luckily, this is easy to do if you keep four steps in mind when making your choice. Let’s look at what they are …

Step #1: Deciding Whether it’s the Right Time to Buy

The nation’s economy is in serious, serious trouble. Unemployment rates are shooting up every month, and no one can say with certainty that their jobs are absolutely assured. So that means people, even those who are still lucky enough to have their jobs, are looking for ways to save money wherever possible. One of the first places where a homeowner will start looking for savings is their mortgage, by refinancing their mortgage with a new and better rate.

By calculating your refinancing opportunities, you will have a better understanding of how different refinancing scenarios will play out in terms of saving you money.

You should consider refinancing when you can get a lower rate on your existing mortgage. This can happen when market rates move down. Or when you increase your income or credit rating. Or perhaps when you simply found a better deal in the market.

However, when you refinance your house, you need to pay fees. Therefore, before you go ahead with refinance you need to make sure you gain more in lower rates than you spend in fees. Read the exact terms offered to you, and calculate how much you will pay on your current loan over the next 3-5 years. Then compare this to the amount you pay on a new proposed loan, including all fees. If the new loan wins, go for it.