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Why Some People Take Out a Second Mortgage
from: Deb St. George - HomelessInKingCounty.comThe term “second mortgage” is easier to understand than home equity loan, but they are essentially the same. A second mortgage is any new loan, beyond the primary mortgage, taken out holding the home as the collateral for the loan. While, you can use a home equity loan to get money out of your home while still living in it, there are also other uses for second mortgages that are not tied to a home equity loan. There are different situations and times when people may try to get a second mortgage to save money or to tap money in equity.
Two Mortgages at Closing
Some people took out second mortgages during the closing of their first mortgage as a piggyback mortgage. This allowed them to put down the needed 20% as a down payment and avoid private mortgage insurance (PMI) costs. This works out well for buyers who have this type of access to credit but are low on down payment funds. If they only had 5 or 10% to put down, the PMI would automatically be triggered and added to their monthly payment. However, if they took out two loans and used the second to bring down the primary mortgage’s loan-to-value ratio then they wouldn’t have to pay PMI.
The difference in monthly payment is not that significant using this strategy, but there are other paybacks – including the ability to deduct the second mortgage’s payments from your taxes, in some cases. PMI, on the other hand, gives you no such tax benefits. Equity also accrues faster by taking out two mortgages upon closing to satisfy the PMI requirements.
The problem with this approach is that lenders are becoming wary of allowing someone to immediately take out a piggyback mortgage to bring up the loan-to-value ration of the first mortgage. If the home approaches foreclosure, the second mortgagee holder finds themselves in the position of absorbing a loss or having to buy the primary mortgage to get something out of the foreclosure on the piggyback mortgage. So, this type of financial two-step may end up being harder and harder to get approved by lenders.
Home Equity Loan
The other type of second mortgage strategy is to get a home equity loan after closing. This can be done any time, as long as the value of your home and your equity in it is enough to support the loan. There are risks for the borrower as the home is being used as collateral. If the home equity loan terms are not satisfied or payments are not made, the lender can foreclose even though it is not the primary mortgage. So, this type of financial tool should be taken on only after carefully reviewing the risks and benefits of a home equity loan.
Mortgage Amortization News
Mortgage Debt Hindering Retirement Planning: BMO Study - MarketWatch (press release)
 Financial Post | Mortgage Debt Hindering Retirement Planning: BMO Study MarketWatch (press release) Ms. Parsons added that choosing a shorter amortization and taking advantage of pre-payment privileges where possible is one way to achieve a mortgage-free retirement. "If you're buying a home at the age of 30, the difference between paying off your ... Canadian Housing Market Balanced, But Local Conditions Matter: BMO |
BMO: Customers Who Have Chosen 25-Year or Less Amortization Mortgage in 2012 ... - MarketWatch (press release)
 Advisor.ca | BMO: Customers Who Have Chosen 25-Year or Less Amortization Mortgage in 2012 ... MarketWatch (press release) TORONTO, ONTARIO, May 11, 2012 (MARKETWIRE via COMTEX) -- BMO Bank of Montreal announced today that customers who selected the BMO five-year fixed rate mortgage with a maximum 25-year amortization so far in 2012 will have saved over $167 million ... Help clients review their mortgages |
Aviv REIT, Inc. Announces First Quarter 2012 Earnings Results - MarketWatch (press release)
Aviv REIT, Inc. Announces First Quarter 2012 Earnings Results MarketWatch (press release) Aviv REIT, Inc. ($'s) 3 Months Ended 3 Months Ended 3/31/2012 3/31/2011 Cash Rental & Loan Interest Income Total Revenues (1) 31790986 22868513 Adjusted For: Deferred Rental Loss (Income) (1) (1680092) 1165922 Rental Income from Intangible Amortization ... |
Annapolis retiree awarded $342000 in bad-mortgage case - Baltimore Sun
Annapolis retiree awarded $342000 in bad-mortgage case Baltimore Sun The mortgages are also known as negative amortization loans because the lowest payment option adds to what's owed on the mortgage rather than subtracting from it. Hollidayoke said no one mentioned this aspect of the loan to him upfront, ... |
Care Investment Trust Inc. Announces First Quarter 2012 Results - MarketWatch (press release)
Care Investment Trust Inc. Announces First Quarter 2012 Results MarketWatch (press release) Total proceeds were approximately $15.7 million and the loan provides for a fixed interest rate of 4.76%, a 30-year amortization schedule and a maturity date of May 1, 2022. Proceeds of the Freddie Mac mortgage were used to satisfy the mortgage bridge ... |
What is mortgage flexibility worth? - Globe and Mail
 Globe and Mail | What is mortgage flexibility worth? Globe and Mail The values below are based on someone who has a 25-year amortization, a three-month interest penalty to break their mortgage early and a 50/50 chance they'll actually use each feature. Naturally, every borrower is unique. A given mortgage feature may ... |
Banks Not Immune to Housing-Related Failures: Corporate Canada - Bloomberg
Banks Not Immune to Housing-Related Failures: Corporate Canada Bloomberg In January last year, Flaherty reduced the amortization period on mortgages backed by the government to 30 years from 35, the third time since 2008 he has tightened rules for home loans. Strengthening Oversight Flaherty introduced legislation April 26 ... |