With all of the interest rate talk these days at the water cooler, it seems that everyone knows where the interest rates are going except for the Federal Reserve. Of course people are speculating, and if they do predict where the interest rates are headed, they certainly could not tell you when they are rising or dropping.
As most of you have realized by now, the first mortgage rates may not go back down to the 2004 levels when the 30 year fixed was in the low 5’s. Over the last 3 years, most homeowners have refinanced to an interest rate they are very comfortable with.
As the housing market shifts, the demand for money is still great, but people will be taking out second mortgages to get cash and consolidate revolving debt. Second mortgages, also called home equity loans have become popular alternative loans that do not require homeowners to refinance their current home loan. As you can imagine, many homeowners would rather leave their low interest 1st mortgage untouched and simply take out a second mortgage on the property for incidental cash like make home improvements or financing a second home.
With the market changing, it is important for consumers to understand how home equity loans work. 2nd mortgages are liens that are taken out against your home for purchase, or cash out refinancing. Second mortgages do use your home’s equity, so you want to be frugal and pragmatic when leveraging your home.
Home Equity loans 125% - These liens are high LTV 2nd mortgages that all you to borrow against your home’s future value. It is hard to believe, but no mortgage insurance is required! The interest rate is fixed and the most common use of funds for these loans is debt consolidation.
Home Equity Line of Credit 100% – Home equity lines are more revolving credit that carries a variable interest rate based on the Fed’s Prime index reported in the Wall street Journal. You only pay interest when you use funds from the line, and only the interest is due each month during the draw period. The most common use of funds with a HELOC is for financing home improvements.
Which ever second mortgage appeals to you, remember to look at the closing costs, interest rate, and whether or not there is a pre-payment penalty. When you are talking with several brokers or lenders the best way to compare the loans is to view the “Good Faith Estimates" which will be provided with the loan disclosures.
Brendon is an experienced writer who enjoys publishing home financing articles when he is not originating loans with BD Nationwide Mortgage in San Diego, California. You can read more of his mortgage articles at other financing sites, like Second Mortgage Outlet and get more tips and advice about home purchase and refinancing.
For a complete look at 125% debt consolidation loans, please check out the loan options at second mortgages . If you need interest rates for California, please visit home equity loans online.