Second Mortgage Interest Rates—Get High When They’re Low

2007-03-08 10:33:40

( Financial )



In case you are not yet clear about this – a second mortgage is a loan or credit line that is second in line with claim on your title. You may hear your lender talk of a second lien. That amounts to the same thing. When you take out a home equity loan or an equity line of credit, the lender places a lien on your home (title) for the amount of the loan or the credit limit.

The lien on your home makes mortgage loans secure, and makes mortgage interest rates lower than other kinds of loans. Your lender feels there is little risk on the loan because there is collateral backing it up. Second mortgage interest rates are also low, for the same reason. And since mortgage interest expenses are tax-deductible items, the effective costs to you of first mortgage interest rates or second mortgage interest rates will be even lower.

However, the presence of a first, or an earlier, mortgage makes the second mortgage less secure than the first. Generally, therefore, you will observe that second mortgage interest rates are higher than first mortgage interest rates.

These days, you can find a wide variety of lenders offering second mortgages (calling them home equity loan or home equity line of credit) because second mortgage interest rates are low.

You may be considering taking out a second mortgage. This is the only way you can access the equity you have accumulated in your home. With second mortgage interest rates being cheaper than unsecured debts, you can find many good uses for the low-cost funds you will get.

Use the funds judiciously because you should never forget that your home is on the line. If you use the money to pay for things that depreciate (like a new car or furniture) or for a vacation, you may end up being unable to pay what you owe and lose your home.

If you put the money into productive investments like home improvements or a business, then you have a reason to feel good because these add value to your home or add to your income potential. These things become real possibilities for you when low second mortgage interest rates are prevailing in the market.


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