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Some homeowners may wish to borrow against the equity in their home in
order to get cash back. Second mortgages can provide homeowners the
financial solution to consolidating debts or making home improvements.
A second mortgage is a mortgage taken out on a property that already
has one mortgage, with priority in settlement of claims given to the
earlier mortgage. As the name implies, second mortgages are secondary
to the first mortgage. If the homeowner is forced into foreclosure
the second mortgage lender will not profit from sale of the home until
the first mortgage has been repaid.
Second mortgages are usually offered with a fixed amount and a
predetermined repayment schedule, which makes financial planning
easier. However there are some disadvantages to second mortgages.
Since the lender has a high risk, second mortgages most often have a
higher interest rate than first mortgages and are shorter in duration.
Another disadvantage is that a second mortgage may require a large
"balloon payment" at the end of the lending period.
A "home equity line" can be obtained from some lenders that allows the
homeowner a line of credit to obtain cash advances. The equity in the
home is used as collateral for the amount of credit requested.
Interest payments paid on second mortgages are usually tax-deductible,
but there are some exceptions. Tax regulations state that to qualify
for a deduction the second mortgage cannot exceed $100,000 plus the
value of improvements. Another exception is if the combined value of
both first and second mortgage cannot exceed the home's value.
A second mortgage should be used wisely in order to avoid financial
troubles that could lead to foreclosure on the home. When used
responsibly, a second mortgage can give the homeowner the financial
flexibility they desire.
Why not get started on your mortgage solution today, get a free quote
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