A second housing loan is any debenture secured by the property’s value, aside from the main mortgage used to purchase the house itself. That one is called the primary housing loan; any other debentures secured by the property are called second home loans, no matter how many properties are there. These things are one of three kinds:
- A HEL or Home Equity Loan, where people borrow a lump sum of money
- HELOC or Home Equity Lines of Credit, which individuals can draw against when needed
- Piggyback debentures are used to split purchases of homes between two different debentures as a cost-saving measure
What is a second mortgage?
Mortgages are debentures backed by real estate as collateral; these things do not have to have been used to purchase the property itself. That is why a HEL or Home Equity Loan is considered a kind of mortgage. Second, housing loans are called that because they are secondary to the primary or main debenture used for home purchases. In the case of foreclosures, primary home debentures get fully paid off before the second loan gets a dime. They are considered second liens, behind the first lien of the main debenture.
Check out this site to find out more about HELs.
Because these things are secured by equities in the borrowers’ houses, their interest rates (IR) can be a lot lower compared to those for other debenture options, such as unsecured personal loans or credit cards. Unsecured debentures such as credit cards do not have anything to back them up, so they are a lot riskier for lending firms.
This kind of debenture uses the equity in the borrower’s property as collateral, so financial institutions like conventional banks, credit unions, or lending firms will be more willing to offer lower IRs. Because these things are second liens, rates on these debentures run a lot higher compared to what lending firms charge for the first housing credit.
Because the main lien gets paid first in case of defaults, second home loans are a lot riskier for financial institutions, sot the IR is different. Rates on these kinds of loans can be either adjustable or fixed. Fixed rates do not change over the life of the debenture, so the borrower’s payments are predictable. Adjustable ones start out lower compared to comparable fixed rates.
It will periodically reset depending on the market condition, so the charges people are paying may fall or rise. Standard HELs and piggyback debentures usually have fixed rates, but Home Equity Lines of Credit is always set up as adjustable-rate debentures during the time when borrowers can draw against their line of credit.
Kinds of second home debentures
As mentioned above, these things fall into three kinds:
- Standard HELs
- Piggyback debentures
In a standard HEL, people borrow a particular amount of funds and pay it back over a prearranged time, usually five to fifteen years. These are usually set up as a fixed-rate second loan, although they are readily available …Read More