Financial Tools
Second Mortages in Real Estate Transactions

With the available equity you have in your home you can obtain a second mortgage to make improvements, consolidate debt, pay college tuition, or make major purchases such as a car, boat, or anything else you desire. You can obtain a second mortgage to assist in the down payment when you are assuming an existing first mortgage.

There are three basic types of second mortgages, also known as Home Equity Loans. The most well known is the traditional fixed-rate, fixed-term loan. You can borrow up to a certain percentage of your home's value, less the amount of any outstanding first-mortgage balance. The amount of the loan is fully disbursed at closing and your mortgage, which can be from 1 to 15 years, will depend on the program the lender is offering.

The second type is an adjustable-rate fixed-term loan. The only difference between this and the fixed-rate loan is the periodic adjustment of the rate and payment. A variety of lending indices are used to determine the interest rate and payment amount at each adjustment period.

The third type is a Line of Credit, with a variable rate tied to a lending index such as prime rate. A certain percentage of your home's value, less the amount of any outstanding first mortgage balance, is reserved for your use. You can use the entire amount or draw on it as your needs arise. Most lenders provide checks for you to access those funds. The payment is a percentage of the outstanding balance or a minimum amount set by the lender. Latest tax revisions in most instances permit interest deductibility on second mortgage loans, regardless of the purpose, up to $100,000. Consult a tax advisor to determine how this would apply to you.