Tuesday, July 3, 2012

Second Mortgages Or Home Equity Loans

Many people who have bad credit find themselves in situations where they wish they could find a loan with low interest rate and minimal risk. You see, even if you have made credit mistakes in the past that does not mean that you are not capable of reforming in the future, all you need is a chance to do so.

There is good news if you already own a home, because this is possible. Despite bad credit, there are options for second mortgage loans that can be made through using the collateral in your house as leverage.

What Is a Second Mortgage?

A second mortgage loan is a popular choice for many people who are in a situation with bad credit and in need of cash. Known as a secured loan, second mortgages are guaranteed by the collateral in your home and therefore carries a lower interest rate.

There is a catch, however. Basically, the idea here is that if you are unable to repay the loan, the bank or private lender can take your home. The good part is that this ensures that you will repay the loan and negates your bad credit since there is a support system in place for the lender should you default on the loan.

Getting a loan like this one can be a scary proposition because of this caveat, however if you consider the following points, you will be able to safely acquire the bad credit second mortgage that you need without the worry.

There Is a Difference between a Second Mortgage and Home Equity Lines of Credit There are a lot of terms in the lending world, such that you may become confused, so it is important to have your facts straight. Though the term second mortgage is interchangeable with home equity loan, a home equity line of credit is a different concept entirely and you need to be careful when discussing this option with a lender.

Basically, a home equity lines of credit are offered at variable rates of interest rather than a fixed rate. This is very dangerous variable interest rates can skyrocket on you. Second mortgages are offered with a fixed rate of interest and that is the option that you want. Second, getting lines of credit allow you to periodically take out money (up to a specific amount or credit) similar to a credit card. A second mortgage, however, is given out in one, large lump sum.

Specific Challenges to Consider

When researching second mortgages, how much money you can take will largely depend on two factors: the current market value of your home and how much you owe on your current mortgage. You can never borrow more than your home's market value between the two loans, though many lenders offer variable LTV or loan-to-value options that start at 80% of your home's market value.

Another issue, obviously will be your credit score. Because the value of your home will likely allow you to acquire the loan, the interest rate will likely still be higher than those offered to people with good credit scores. That is why it is important to compare several lenders' packages to get the best deal.

It Pays to Shop Around

A good way to go about finding the second mortgage you need at a price you can afford is to look through several online lenders and get quotes from 2-3 of them. You can begin your search through entering the terms bad credit second mortgage loans or lenders into a basic internet search and then go from there.

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