subject: Mortgages Are Debts - A Second Home Loan Makes It Worse [print this page] Mortgages Are Debts - A Second Home Loan Makes It Worse
Since most of us do not have tens of thousands of dollars stashed away in a banking account, if we would like to get a new property we have to go out and find a mortgage loan. Lots of people do not really treat home loans as debts however that is just what they are , and significant ones as well generally.
When you don't keep up monthly payments on the mortgage loan, the provider is going to take your property away from you. They actually own the vast majority of it anyway.
You purchased it using their funds.
Right now there are a lot of specialist mortgage companies out there and it is very competitive so the home interest rates are normally held at a very stable level and can be fixed for a given time period.
There may come a time down the road after you've had your house loan for some time and the equity left in the residence is substantial.
(Equity is the difference between the current value of the house and the amount you have borrowed). At that point in time you might require an amount of money for some particular reason, perhaps for your kid's education loan or to get a holiday home or embark on a world luxury cruise to celebrate a special birthday.
This is when second mortgages come into play.
You're able to make use of that value and submit an application to a second bank to get more money using the same security that is your house. It's quite often termed a home equity mortgage loan.
There can be some drawbacks with this approach however.
The primary one is that the firm you have the first house loan through has the first call on the property.
When you don't keep up your obligations they will get your property and auction it. From the proceeds they'll have whatever amount of cash they require to pay off the primary sum plus any monthly obligations you have neglected plus a heap of costs.
This could quite possibly mean that they need pretty much all the cash that they get in by the selling of your residence.
This makes the organization with the second charge in a really precarious situation. It's a far more dangerous proposition for them than possessing a first charge on the house.
To cover for this additional risk, the interest rate that they will ask you for will be considerably higher than that of a normal mortgage loan. This is the actual reason why I believe that it should be a second choice.
Actually I am not even convinced that it should not be even lower.
The best choice of all is to stay away from purchasing something that you are unable to pay cash for. Start a savings scheme as quickly as you will be able to do it. Next would probably be to look at re-mortgaging your property so it is all as a first mortgage.
After that, if all else fails, ultimately take out an expensive second mortgage.
