An individual’s home is the biggest asset that one has at his disposal. A home to back you up when you need a loan is one of the greatest advantages of home ownership. In recent years, there has been a major boom in the amount of people looking to use their homes as a way to get access to extra money when they need it most. One of the best ways to do this is through a second mortgage.
Second mortgage loans are loans that are made in addition to the first mortgage, and it is usually based on the amount of equity that the borrower uses to build into his home. Usually it’s required to fund home renovations. Since the borrower has already been through the process once, the underwriting that is required to get a second mortgage is much simpler than it was the first time around when the borrower had taken the first loan. The cost of the transactions involved will be lower when the borrower applies for the loan second time. This usually happens for the fact that interest rates on the second mortgage are a bit higher than they were on the first one. But then, there are some positive points too. For example, the fact that the interest paid on the loan may be tax deductible. In most cases the interest is 100% fully deductible as long as the combined loan to value of the 1st and 2nd mortgage does not exceed the value of the home.
On a second mortgage, one borrows a fixed sum of money against the home equity, and pays it back after a specific time. The amount borrowed will be combined with the amount the borrower still owes on his first mortgage. But there are a few things that one should keep in mind. First of all, one should not take a second mortgage on his home unless one has made payments on the original mortgage balance for a good amount of time. One may be able to get a second mortgage if one does not have much equity, but then the loan rates will be much higher, and the amount that one can borrow much lower. It will essentially be a waste of time and money.
A second mortgage is a loan that is secured by the equity in ones home. While obtaining a second mortgage loan the lender places a lien on the borrowers’ house. This lien will be recorded in 2nd position after the primary or 1st mortgage lender's lien, hence the term second mortgage. Second mortgages aren't for everyone. Borrowing more than 80% of the home's value will subject the borrower to private mortgage insurance. The monthly payments should also be a factor. If one refinances in the future, he will have to pay off the 2nd mortgage.
Loan proceeds from a second mortgage loan can be used for just about anything. Many consumers take out 2nd mortgage loans to consolidate debt, do home improvements or pay for their children’s college education. Whatever one decides to do with the loan proceeds it is important to remember that if one defaults on then payment then he can lose his home. So one would want to make sure that he is taking the loan out for a worthwhile purpose
Thus we see that a second home loan can be of great help to the borrowers, although the borrower must take steps to ensure that he does not squander away the advantages of second mortgage.
Tuesday, August 4, 2009
Mortgage Loan
In the past decades, it was believed that a mortgage loan is a mortgage loan no matter whichever is chosen. But this theory is not workable anymore because of the many mortgage loan products available in the market. So, before choosing a mortgage loan, it is very important to decide which one is right for you. Finding the right mortgage loan means balancing your mortgage options with your housing requirements and financial picture, now and in the future. Also the right mortgage is not just having the lowest interest rate but much more than that. And this “much more” will be determined by your personal situation. Your personal situation and your limits to pay for monthly mortgage payments can be evaluated by answering the following questions:
• What is your current financial situation (including income, savings, cash reserves and debt-to-cash ratio)?
• How you expect your finances to changeover in the coming years?
• Have you plan to return the mortgage loan before retirement?
• How long you intend to keep your house?
• How comfortable you are with your changing mortgage payment amount?
The answers to these questions will give you the idea of your financial position. Now the next step is to decide two key options:
• mortgage length,
• type of interest rate (fixed interest rate or adjustable interest rate).
The length of mortgage loan can be minimum 15 years; can be 20, or at maximum 30 years. While selecting a fixed or adjustable interest rate you should be aware of the facts that the adjustable interest rate mortgage is more risky because the interest rate will change, while a fixed-rate loan offers more stability because of the locked-in rate. You will be able to pay off a shorter-term loan more quickly, but your monthly payments will be substantially higher. Long-term fixed-rate loans are popular because they offer certainty, and many people find that they are easier to fit into their budget. Although, in long run they will cost you more, but you will have more available capital when you need it, and you will be less likely to default on the loan should an emergency arise.
In the light of above mentioned aspects, it is clear that the key to select the right mortgage loan for your needs should fit comfortably into your entire financial picture, that is having payments within your budget and comfortable level of risk connected to it.
• What is your current financial situation (including income, savings, cash reserves and debt-to-cash ratio)?
• How you expect your finances to changeover in the coming years?
• Have you plan to return the mortgage loan before retirement?
• How long you intend to keep your house?
• How comfortable you are with your changing mortgage payment amount?
The answers to these questions will give you the idea of your financial position. Now the next step is to decide two key options:
• mortgage length,
• type of interest rate (fixed interest rate or adjustable interest rate).
The length of mortgage loan can be minimum 15 years; can be 20, or at maximum 30 years. While selecting a fixed or adjustable interest rate you should be aware of the facts that the adjustable interest rate mortgage is more risky because the interest rate will change, while a fixed-rate loan offers more stability because of the locked-in rate. You will be able to pay off a shorter-term loan more quickly, but your monthly payments will be substantially higher. Long-term fixed-rate loans are popular because they offer certainty, and many people find that they are easier to fit into their budget. Although, in long run they will cost you more, but you will have more available capital when you need it, and you will be less likely to default on the loan should an emergency arise.
In the light of above mentioned aspects, it is clear that the key to select the right mortgage loan for your needs should fit comfortably into your entire financial picture, that is having payments within your budget and comfortable level of risk connected to it.
Tuesday, April 28, 2009
Mortgage Mis-Selling
After 20 years since the first mis-selling scandal involving pensions, the mis-selling within financial services rages on unabated. More widely defined as "To sell misleadingly, fraudulently, or in violation of laws or regulations is a more to the point, matter of fact definition".
Consumers now have two options, complaints that can be referred to the FOS apply only to events taking place after April 6 2007. Secondly, if your loan agreement is dated prior to this date certain loan agreements can be examined to determine whether they are enforceable.
The most recent precedent has been Mortgage mis-selling, mortgage mis-selling. A housing association tenant, who had been repossessed, had the valuable promise of a rent fixed for life. However, a mortgage adviser persuaded him to buy the property and failed to consider what would happen when the discounted mortgage rate ended. The Mortgage Code of Business along with The Financial Services act is there to protect consumers.
Mortgage mis-selling, albeit recent, could well be the tip of a very big iceberg. The inherent facets of regulated mortgages will no doubt prompt an all encompassing review of self certification and seemingly the more vulnerable council right to buy and sub prime borrowers. Council right to buy tenants have always been heavily canvassed.
What relentlessly drives and underpins twenty years of consumer complaints and recourse is greed, commission structures, incentives and a dysfunctional duty to shareholders. A firm must pay due regard to the needs and aspirations of its customers, and communicate information to them in a way which is clear, fair and not misleading. However what seems to be overlooked is the regard to the principle that consumers should start taking some responsibility for their own decisions.
Consumers now have two options, complaints that can be referred to the FOS apply only to events taking place after April 6 2007. Secondly, if your loan agreement is dated prior to this date certain loan agreements can be examined to determine whether they are enforceable.
The most recent precedent has been Mortgage mis-selling, mortgage mis-selling. A housing association tenant, who had been repossessed, had the valuable promise of a rent fixed for life. However, a mortgage adviser persuaded him to buy the property and failed to consider what would happen when the discounted mortgage rate ended. The Mortgage Code of Business along with The Financial Services act is there to protect consumers.
Mortgage mis-selling, albeit recent, could well be the tip of a very big iceberg. The inherent facets of regulated mortgages will no doubt prompt an all encompassing review of self certification and seemingly the more vulnerable council right to buy and sub prime borrowers. Council right to buy tenants have always been heavily canvassed.
What relentlessly drives and underpins twenty years of consumer complaints and recourse is greed, commission structures, incentives and a dysfunctional duty to shareholders. A firm must pay due regard to the needs and aspirations of its customers, and communicate information to them in a way which is clear, fair and not misleading. However what seems to be overlooked is the regard to the principle that consumers should start taking some responsibility for their own decisions.
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