Second Mortgage  Valuable Tips To Help You Make The Right DecisionSecond Mortgage Valuable Tips To Help You Make The Right Decision

When considering the facts within this article, it may be quite surprising to find some of the issues you thought were settled are actually still being openly discussed as to which type of loans are best.

A second mortgage is a mortgage whose terms are subordinate to the first mortgage. Loans with a second mortgage are usually done when the homeowner needs money in order to pay for an existing loan.

What Type Of Loan Is Best - A Second Mortgage, Home Equity Loan Or Refinance?

This is a question every homebuyer is faced with when shopping for mortgages. Take this scenario: A homeowner is facing a credit card debt of $50,000. Should he take a $190,000 second mortgage to refinance an existing mortgage with a balance of $140,000? Or should he borrow the money from a $50,000 home equity loan?

In most cases, borrowers who took a mortgage when rates were lower will find a second mortgage better than a home equity loan. But to be certain, some factors need to be considered.

You need to compare the interest rate and points of the first mortgage with that of a second mortgage. Second, find out if there are any PMIs (Private Mortgage Insurance) involved with the second mortgage. Find out what loan term is most favorable for you on your second mortgage. Your income tax bracket and amount of cash you need from your second mortgage are also necessary factors.

Consider the case above. If the first mortgage at $14,000 was acquired two years ago, the interest rate would be 7 percent for 30 years without PMI. Let's say your income bracket is 39.6% (the highest) and you are capable of earning 5% more on your investments. Your house is now worth $213,000.

Hopefully the information presented so far has been applicable. You might also want to consider the following examples before you select a loan.

A second mortgage for $190,000 with settlement costs will require PMI. If you decide to get a home equity loan instead, you will get 30 years loan term at 8.25% and one point. For $50,000, your second mortgage will include additional costs for 15 years at 11.5% and one point. The result will be that over the course of five years, your second mortgage will have saved you $11,361 more than what refinancing will.

Take A Second Mortgage Or Get A New One And Pay PMI?

Getting a second mortgage has more advantages when it comes to taxes than a separate loan. But usually, this depends on many other factors.

Getting a second mortgage is better than getting a separate loan when the rate difference between the second mortgage and the first mortgage is small. If the loan term is short, then getting a second mortgage probably makes more sense than getting a separate loan. Balance is paid off faster with shorter term loans. Since second mortgages have considerably higher rates, the shorter the loan term is, the better it is to get a second mortgage loan.

Other factors that affect the advantage of second mortgages over separate mortgages are tax brackets, closing costs, and expected appreciation rate.

For example, you have a tax bracket of 15% and a 30-year first mortgage for $160,000 and a second mortgage for $20,000 at 11.75%, zero points, and to be paid off in 15 years. A separate mortgage would be for $180,000 with down payment at 10%. Interest rate for this separate mortgage would be at 8.25%, zero points, and 0.52% PMI.

When you calculate this, you can see that over the five years, a second mortgage will have saved you 16.97% more than a separate mortgage would.

With the right facts and information you will know you have made the right financial decision. The time spent educating yourself can be well worth your time and effort. Be sure to read more articles before you make your final choice of loan that is best for you.

by Dean Shainin
References and Bibliography

Dean Shainin is a consultant specializing in home loans, strategies for loan financing, home equity loans, and consolidation loan information. To see a list of recommended loan companies, tools, resources, free quotes and articles, visit this site:

Get free valuable online tips for saving money from his: Home Equity Loan website.

Rated:NR/0 Votes
Add To My Article Reading List
Add To My Article Reading List
Print Article
More Article By Dean Shainin
More Article by Dean Shainin
More Articles From Mortgage Refinance
More Articles From Mortgage Refinance
Related Articles and Readings
Learn How and When to Use a 1st 2nd or Reverse Mortgage and Utilize the Equity Built in Your Home By: John R Blakefield
Throughout your home owning experience, you may run into unexpected events that cause you to use your options of increasing and decreasing both your debt and home equity in your property. Mortgages are really just that, a change in the amount of money you owe (debt) and the amount of ...
Mortgage Insurance By: Matt Ellsworth
?Mortgage insurance? is a term that you will surely come across if you are going for a mortgage loan. Let's get straight into finding out what this term (?Mortgage insurance?) means.Mortgage insurance is a great tool for both the borrower and the mortgage lender. By definition, mortgage insurance provides protection ...
Are You Ready for a Home Mortgage Loan By: Michael Contaro
Buying a Home and committing to a Mortgage can be very scary! A home mortgage loan is the largest debt that most Americans will take on in their lifetime. As such, making the decision to take out a mortgage is not one that most first time homebuyers take lightly. Not ...
Australian Mortgage Brokers Should You Use One By: Chris S
What Is A Mortgage Broker?Mortgage Brokers act as an intermediary who serve to bring Home Loan borrowers together with suitable mortgage lenders. Mortgage Brokers do the shopping around for the borrower and in most cases collect their fee from the chosen lender rather than from the borrower.Should You ...
Mortgage Effective Household Investment for Financial Autonomy By: Natasha Anderson
If finances had a copyright, we would have bought it by now. But it is hardly sold anywhere near the place we live. So, when we decide to take a mortgage it becomes highly perplexing for it is something you are not used to. Taking out a mortgage is not ...
The information provided in this article and/or the comments is the sole responsibility of their respective authors and does not necessarily reflect the opinion of  does not endorse any article and/or comments published by our web users unless otherwise noted. 

Member Panel

login to submit articles and more


  • » Active Categories: 419
  • » Active Articles:252603
  • » Active Authors:31917
  • » Active Members: 38237
  • » Statistics Updated:
    - Tue Sep 1st, 2020 09:28AM EST