Second Mortgages – Charlotte NC Real Estate & Finance

With interest rates at an all time low, you might be considering taking out a second mortgage on your home. A second mortgage is a loan that’s secured by real estate that already has a first mortgage. The equity in your home determines the maximum amount of a second mortgage. Equity is the difference between what is owed on your home and value of the home.

Here’s the formula to figure out equity: Value of Home – Total Amount of Loans = Equity.

Types of Second Mortgages

• Fixed Rate Second Mortgages – These are mortgages with a fixed interest rate, typically 15 -30 years and a fixed term.
• Home Equity Line of Credit – Typically, these are adjustable rate mortgages (ARM). The interest rate is fixed for a specific period and then becomes adjustable for the remainder of the loan.  The adjustment is based on an index according to a predefined schedule and usually adjusts once a year. Your monthly payment will fluctuate based on interest rates and your index. With a home equity line of credit, you have a maximum limit, which allows you to take out funds up to the maximum over the course of the loan. However, when the life of the loan is over, you are required to pay off the entire balance or refinance the loan.

Why take out a Second mortgage?

Many homeowners are choosing to tap into the equity in their home for the following reasons:

• Reduce monthly payments
• Pay off credit cards (see caution below)
• Start a business
• College tuition
• Switch from an ARM to a fixed rate mortgage
• Save Money

Second Mortgages and Credit Card Caution

Making minimum monthly payments on your credit cards will keep you paying on them for about the next 30 years. Many people decide to take out a second mortgage so they can get rid of credit card debt and have a fresh start with lower interest rates. However, it’s very easy to go right back into credit card debt if you haven’t addressed the underlying isues of credit card spending.

What Determines the Interest Rate on a Second Mortgage?

Just like it is with a primary or first mortgage, the better your credit is the better your interest rate. If you have less-than-perfect credit, you might only qualify for up to 80% Loan-to-Value (LTV) with a higher interest rate.

For example: Your house is valued at $275.000 x 80% = $220,000.  If you currently owe $175.00 on your home, you would be able to get a second mortgage for the amount of $45,000.

What if You Don’t Have Good Credit?

Even if you don’t have stellar credit, there’s the option of a mortgage loan modification, which can modify your loan down to the current market value, lower your monthly payment and save you thousands of dollars. Most of the government’s Troubled Asset Relief Program (TARP) is being used for loan modifications. TARP allows the U.S. Treasury to purchase or insure up to $700 billion of “troubled” assets such as residential or commercial mortgages.

Charlotte NC Real Estate and Finance Expert

If you are in the market to buy real estate in Charlotte, North Carolina contact Leigh Brown, real estate and finance expert. Leigh is the leading real estate agent of the Charlotte Metro area. She has years of experience helping clients buy and sell property in Charlotte, NC with a proven track record of success. You can reach Leigh by filling out the contact form on her website or by calling her at (704) 688-5005 or toll free at (866) 440-7136.