What You Know Can Save You Money!

Knowledge isn’t just power—it can also be huge savings for you as a second mortgage borrower! The more you learn about second mortgages, the easier it will be for you to make an informed decision about the kind of loan that is best for you. Here are some commonly asked questions about second mortgages. Feel free to check out what questions we have been asked.

How do Second Mortgages Work?

A second mortgage is often referred to as a home equity loan. This is because a second mortgage allows to you borrow money based on the amount of equity you have accrued by paying off your primary mortgage. While second mortgages tend to have higher interest rates than primary mortgages, you can expect a lower interest rate than most unsecured loans because you use your home as collateral.

What is Collateral?

Collateral is insurance in case you default on your loan. When you take out a second mortgage, you offer your home as insurance for your lending institution in the event that you default. That fact that you can use your home as collateral on your second mortgage gives you the benefit of a secured loan—which translates into greater loan interest savings for you!

What is a Secured Loan?

A secured loan is any loan that uses collateral to insure the lender that should the borrower default on the loan, the lender will not be at a total loss. This provides the lending institution with greater confidence, or security, in the loan. Consequently, lenders tend to give secured loan applicants lower interest rates than unsecured loan applicants. Usually, borrowers offer property or sometimes vehicles as collateral for their secured loan.

What is Equity?

Equity is the difference between the estimated value of your home and the amount of money you still owe on your primary mortgage. To calculate your home’s equity simply subtract the amount of money you still owe on your primary mortgage from the appraised value of your home. For example, if your home is worth $150,000 and you still owe $100,000 on your primary mortgage, then your equity would be $50,000.