Second mortgage products offer a convenient way to take equity out of a property or provide financing in a purchase, refinance, or debt consolidation. For difficult to verify income, stated income second mortgage products are available. Interest only second mortgage products will lower your payment. Second mortgage products carry a fixed interest rate and amortization periods range from 5 to 20 years with a new second mortgage product amortized over 30 years with a balloon due in 15 years. The longer amortization period lowers your monthly payment significantly. In a purchase transaction, a second mortgage is used in combination with a first mortgage to avoid paying PMI. Frequently described as an 80/10/10 or 80/15/5 the first mortgage is set at 80% of your purchase price/value. Add a second mortgage of 10 or 15% of the purchase price and you supply 5 or 10% cash. Advantages of this second mortgage approach include:
However, there are some potential problems with the strategy.
Second Mortgage Debt Ratios
Debt ratios are determined by dividing your total monthly debt by your monthly pretax income. Our programs will allow up to a 45% total debt ratio. If you are refinancing, one effective strategy to get your ratio down is to pay off debt at closing. Debt paid at closing is not counted in the ratio calculation.
Second mortgage products can be arranged for up to 125% of the value (including your first mortgage) of the property. Interest rates generally increase any time your combined loan to value (CLTV) exceeds 90%. However, high CLTV rates are generally lower than other consumer or credit card rates and the longer amortization schedule can significantly reduce your monthly payment. I have had clients cut their monthly payments in half using their home equity instead of paying high credit card payments. This approach is referred to as a debt consolidation second mortgage.
Learn more about the tax considerations of a second mortgage
Learn more about second mortgage closing costs
Please feel free to email with any questions about a second mortgage.
We have a page on how to calculate your second mortgage qualification ratios.
We have a page on second mortgage documentation requirements.
Learn about the differences between home equity loans and lines
We offer you the ability to qualify and close into several unique programs which accommodate borrowers with non traditional income or asset situations.
* I have included a section on the new Cash Flow ARMS. A LIBOR based product which gives you complete flexibility in managing your mortgage.
As a Certified Mortgage Planning Specialist, I offer an analysis of your situation today can make suggestions on how small changes in how your consumer and mortgage debt is structured today can have a life changing effect in the years to come. Read more about this free, no obligation service.
Prequalify for your Second Mortgage