Busting The Myth: Solvent People Also Opt For Second Mortgage Or Equity Loan
People often think that once they mortgage their home, there is no way to get a loan again, using the same home as a security. They have no idea what second mortgage or equity loan is. This kind of a loan accepts an already-mortgaged house as a security. Now most of us simple folks are baffled to hear that, while the annoying know-alls explain the whole thing to us using jargons and in such a grave manner, making the simple thing a completely formidable stuff. But it is not really so, and not necessarily the bankrupt and the destitute need to opt for second mortgage or equity loan.
To begin with, we must be clear about the term “equity”. It is the value of your home minus your current debt in the market. Suppose your home is valuated at $ 50,000 at the present market rates and your debt in the market is $ 20,000. Then your home has an “equity”value of $ 50,000 - $ 20,000 = $ 30,000. If it is still not understood, splash your eyes repeatedly with water and get some sleep. You are probably tired of surfing the internet.
As the above paragraph points at, it is better to take a second mortgage or equity loan when you have repaid the mortgage loan to a fair amount, as you would be in a favorable condition then. Take an second mortgage or equity loan and use it to buy costly carara marble and tiles and bathroom fittings that would spruce up your house. What’s the use? Don’t you see that the resale value of your home has increased threefold now?
With such a second mortgage or equity loan, you could also pay off your children’s student loans or just visit Ngorongoro or Darjeeling with your family. It is a myth that only insolvent and bankrupt people go for second mortgage or equity loan.
However, before going for such a second mortgage or equity loan, you should take two or three things in consideration. Obviously you should check the new rate of interest first for the second mortgage or equity loan. If the new interest rate on second mortgage or equity loan is not at least two – three percentage points lower than the previous one, this second mortgage or equity loan would probably be no good for you.
This is an ideal time to take such a second mortgage or equity loan as the interest rates have hit an all- time low in the recent years and there is no sign of any major economic event that would affect it. The rates may fluctuate at the rate of 0.01% or so. If you have earlier mortgaged your house at a higher rate this is the time to go for a second mortgage or equity loan.
Another matter you should consider is whether the financer is waiving refinancing charges or not. Refinancing charges consist of refinancing fees, legal fees and appraisals. See if the second mortgage or equity loan you are taking is really a no- cost loan or the financer is making good for it in some other way, by slightly increasing the rate of interest. If it truly is a no-cost second mortgage or equity loan, it can do wonders for your home economy.
Debt consolidation is another reason for you to take recourse to an second mortgage or equity loan. People use too many credit cards, and are overcome with debt. In such a situation, you can refinance your earlier high-interest loan and put the excess cash into debt consolidation. You consolidate all your credit card debt and repay a single loan once every month over a period of say, seven years. That way the burden on your purse is lessened.
Another fact that you should know is that second mortgage or equity loan can lead to tax deduction. It is a complex process that starts with dividing your term into “points.” You don’t really need to understand the complex process. Just ask your tax adviser and he can calculate whether the second mortgage or equity loan that you are going to take is going to lead to tax deduction.
Before taking such a second mortgage or equity loan, it is always good to do some market survey. Some lending agencies as well as banking institutions have web pages with javascript-created consoles called mortgage calculators. There are some software programs to do the same job in a more elaborate way. You can also download freeware from download junctions. Use them well. Go to the websites of lending agencies and compare rates to see which scheme suits you best. The mortgage market is break-neck competitive (did you know that there are some agencies that “sell” your loan application to prospective financers?) and so you should make the best of it. There is no reason to stick to the good old bank you have become used to. Look for greener pasture, and it need not always be on the other side of the fence- grab a second mortgage or equity loan.
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