There are dangers with 2nd mortgages that are taken out after a purchase.
1) There are two different types of 2nds. One is a HELOC. Sort of like a checking account in that you can write checks up to the limit of the line.
The dangers are
1) they are adjustable rate mortgages based on prime. The rate is determined every month by adding the profit margin to the index (index is normally the prime rate) I have seen the rates on those mortgages jump 2 points in a few short months.
2) the smaller ones are sometimes listed on your credit report as revolving credit lines, so if you have a line of 25K and are using 25K, it is a 100% utilization, which sort of hurts your scores. You can get the bureaus to report correctly, but if/when that HELOC is sold you will have to be careful that the same problem does not happen again.
The other kind of 2nd is called a HELOAN. This is a fixed rate 2nd. Here the only thing to be careful of is that many times the terms are 15/30's, which means that at the end of 15 years you have a balloon payment due for the balance.
For both of these type loans, if you get one and then want to combine your 1st and 2nd in less than 12 months after the refinance, your rate on your 1st will be higher because it is considered a cashout refinance. Don't know why, one of those rules that the investors have.
Lastly, these types of loans are very risky for lenders. Being in 2nd position is bad if the borrower decides to not pay. Therefor the rates are either higher or considerably higher than a loan in 1st postition. The investors are requiring higher credit scores and lower DTI (Debt to Income ratio's) lately.
Charles
Charles
Quote:
Originally Posted by samantha  Advantages
1) Home equity loans are easier to get because of their secured nature and are particularly good for those with a tarnished credit rating or history.
2) Home equity loans offer far lower rates of interest than unsecured loans and credit cards, and this is because they are secured loans and therefore less of a risk to the lender. This contributes towards lower monthly repayment as well as less interest to pay overall on the total loan.
3) Home equity loans enable you to unlock the cash that is tied up in your property without having to actually sell your property.
4} Extended Repayment Schedules – You can often choose to hold onto a home equity loan for as long as you own your home.
These extended repayment schedules make the month to month management much easier.
Disadvantages
1} The biggest drawback of a home equity loan is the fact that your home is on the line and you could lose your home if you default on your payments.
2} When you borrow from your home's equity you also reduce the equity or ownership you have in your home. This means that you trade ownership or equity in your home for cash that you will use for some other purpose.
3) In addition to interest you will pay on the loan, there are also costs associated with taking out a home equity loan -these costs are similar to the costs you paid when you bought your home.
Cheers
Samantha |
Advantages & Disadvantages of Home Equity Loans 
