Typically second mortgages fall into one of the two following categories:
Equity seconds - Equity seconds are second
mortgages that use the equity you have in your house as the basis upon
which a lender loans you money. Most lenders will require an appraisal in
order to establish your house's value and the equity contained therein.
Borrowing with an equity second normally allows you to obtain
a better rate due to the fact that the money borrower is secured on
property you have ownership in.
Over-equity seconds - Over-equity seconds are
second mortgages that lend you money over and above the value of your
house. Over-equity seconds are commonly known as "125's" or
"115's" because they allow a lender to loan you money at 125% or
115% of your house's value. Requirement of appraisal is based upon the
amount of money borrowed. Typically, if you plan
to borrow over $35,000 on an over-equity loan, an appraisal is
required. Borrowing with an over-equity second allows you to obtain a loan
when a personal loan may have not been possible.
The most common uses of second mortgages are:
- Home improvement
- Debt consolidation
- Pay for college
