why do people take out 2nd mortgages?
in the movies they do that cause theyre broke i think. so i wanted to know if ive misinterpreted why people take out 2nd mortgages.
simple answers would be much appreciated.
Tags: Mortgages, People, Takein the movies they do that cause theyre broke i think. so i wanted to know if ive misinterpreted why people take out 2nd mortgages.
simple answers would be much appreciated.
Tags: Mortgages, People, Take
To consolidate debt, improve their home, pay for college, and invest to name a few reasons.
They want to get money using their home equity, without refinancing their first mortgage.
Some certainly need the money b/c they are out of money. Others it may depend:
1) If you are buying a house, your best payments may be when you have a first and a second. Usually you get a second when you don’t have enough money to put up a down payment
2) If you are getting a home equity loan or line of credit – this is often called a second. Second refers to the position of the lien. A first mortgage has first position and second has second. Or again, it may make more sense to do a lower interest first mortgage with a higher interest 2nd. Also, the 2nd mortgage will mean that you don’t pay mortgage insurance on the 1st mortgage.
Sorry for the long answer – but there are other reasons besides being broke, to have a second mortgage.
Regards,
Joe…
Also, a second mortgage, or as they are more commonly known today, home equity loans, can offer a lower interest rate than other forms of consumer credit, such as a car loan, or home improvement loan.
The second mortgage can be tax deductible, where other types of consumer loans (except for the first mortgage) are not.
And, sometimes, they can be structured with a variable monthly payment, like a credit card, versus a fixed payment, which might be a benefit — i.e. knowing that you will only need it for a short time, pay the minimum, then pay off the balance when you receive your anticipated windfall, such as a bonus or commission check.
They’re done for all sorts of reasons. What you see in movies is an old stereotype of why people used to take second mortgages. Historically, they weren’t done for much except home improvements, or under financial emergencies. Spending your home equity for frivolous stuff was unheard of 30 years ago.
In the last decade or so, banks have started pushing people to spend their home equity for everything under the sun: vacations, vehicles, home improvements, debt consolidation, etc…
More often nowadays, since no one has 20% to put down on their home purchase anymore, they are used in lieu of a down payment on their home.
because your first mortgage can’t be more than 80% of the value so the second loan covers the other 20%. They do this because if you have one loan over 80% you have to pay “private mortgage insurance” which is basically insuring the mortgage you have for nothing.