How are baby boomers - millions of whom are still carrying hefty first and second mortgage loans - ever going to pay them off?
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Let’s take a few moments to talk about the different choices you have when it comes to the withdrawal of the equity in your house.
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I need $50,000 to refinance credit card debt. Is it better to refinance my existing mortgage (with a balance about $140,000) into a new $190,000 mortgage, or should I borrow the extra $50,000 with a home equity loan?
A second mortgage may have allowed you to acquire the residence you wanted or to have extra cash for some project - but that was a few years ago.
Now, you’ve built up decent home equity and are wondering if it would be a good time to refinance your second mortgage. Here are some things you need to know in order to help you make that decision intelligently …
With home prices remaining super high and an increasing number of families finding it difficult to qualify for a mortgage, it’s understandable that shared housing is re-emerging as a trend.
The concept of two family units or friends combining resources to purchase and live in a single home, or a number of families living in a co-housing development, is growing in today’s market.
According to the Canton Repository, co-housing, where multiple family units share accommodations and responsibilities, first emerged in Europe, but soon became popular in some areas in the United States and Canada.
“It offers an end to the isolation of single-family homes,” stated in “The Cohousing Handbook,” published in Canada. “Residents own their own homes and can gather in common areas to share meals and socialize.
“It addresses and alleviates many of the demands and pressures of modern life - everything from day care for the kids to aging at home. It’s all easier with the help of your close neighbors.”
Shared ownership is more prevalent with second homes, or vacation properties. High home prices for these residences often prohibit purchase by an increasing number of individuals and families who would like to own a dream vacation home, or at least an ownership share in one.
Americans are finding that participating in a joint ownership arrangement with one or several others, a second home purchase loan can be feasible.
In some cases, people who own a vacation home are now selling ownership units in their property. It’s a viable way to generate cash, without sacrificing any time that they can spend at their vacation home.
When purchasing a second home jointly with others, it’s common to take title with a tenancy-in-common agreement, with each owner arranging for their own second mortgage loan financing.
Some participants tap into the equity they have accumulated in their primary home to pay for their investment share in the second home or at least the down payment, before getting a second mortgage.
Some lenders now offer “fractional funding” mortgages - loans tailored specifically for group ownership situations. Under one plan, everyone in the ownership group shares one mortgage loan.
In another plan, each participant arranges his or her own financing. In either case, these mortgages are structured in a comparatively simple manner with special advantages for group buying participants.
If you are interested in participating in the group purchase of a vacation home and need financing, ask several home loan lenders if they offer a fractional mortgage financing plan. Then compare the terms they offer.
SOURCE: Canton Repository
The Examiner reports that shares of Fremont General Corp. shot up nearly 10 percent Tuesday after news that the company would no longer offer second mortgage financing to buyers who need to borrow their down payment.
Fremont is a bad credit home loan lender that issues both first mortgages and second, or “piggyback loans,” that supply the 20 percent of the purchase price for those who want to finance 100 percent.
The second mortgage financing accounts for just a small portion of Fremont’s total lending - 8.7 percent in 2005 and 8.1 percent through September 2006, according to the company’s financial statements.
The mortgage company has also been taking steps to tighten its credit requirements for its home loans as home values decline and defaults rise.
Fremont packages its mortgages and sells them as securities to investors, typically within several months after the home loan is made. But the market for investing in second mortgages has dried up in recent months.
Holders of the first mortgage are first in line to get paid if a homeowner defaults, after all, leaving many second mortgages worthless.
When home values are rising, 100 percent financing is less of a problem for lenders because homeowners having trouble making the payments can apply for a mortgage refinance.
But as home values decline, defaults increase, which often times makes the second mortgage a major problem to collect.
News of Fremont’s decision to discard its second mortgage business was first reported by the Wall Street Journal and confirmed Tuesday by Linda Bandov, Fremont’s director of corporate compliance, who declined to comment further on the issue.
The Journal said the news was good for Fremont investors, because the Santa Monica-based company relies on residential mortgage loans for slightly more than half of its business. The company also makes commercial loans.
Fremont could get back into the secondary market when home values begin to rise again and mortgage defaults decrease, experts predict.
SOURCE: The Examiner
Coming up with 20 percent of a home’s price for the down payment can be a steep hurdle for a prospective home buyer - and can delay a home purchase for years.
After all, buyers who can’t put down 20 percent are generally required to buy mortgage insurance, which can come to as much as another $250 a month on top of the mortgage payment.
To help low- and moderate-income buyers in Chicago’s South Side avoid this extra cost, the Chicago Sun-Times reports that Marquette Bank and South Side Community Federal Credit Union have started a new program that uses a second mortgage for a portion of the down payment.
Payments on the 2nd mortgage would be about half the cost of mortgage insurance, and the interest is tax deductible, explained Mike Mangin, executive vice president of retail lending for Marquette Bank, which has nine of its 25 branches on Chicago’s South Side.
“This will be an alternative for some people out in the subprime (or bad credit mortgage) market really getting whacked with loans,” Mangin said.
The program, which functions similarly to piggyback loans, is offered to members of the credit union. Membership is limited to those who live, work, worship, attend school or participate in an association in a specific area defined by the city.
The program combines the first mortgage originated by Marquette Bank with the second mortgages originated by South Side Community Federal.
The first mortgage will amount to no more than 80 percent of the total value of the property being purchased, combined with a second mortgage in the amount of the difference between the borrower’s down payment and the first mortgage.
As part of the program, Marquette will offer a closing cost credit of up to $1,000, plus up to $3,000 in grants for down payment assistance. South Side Community Federal requires buyers to receive home buyer education and counseling, and show they have enough income to cover home payments.
Similar partnerships have been formed between banks and churches, said Paul Smith, senior counsel for the regulatory policy for the American Bankers Association. But Smith said he has never heard of a bank and credit union joining for this type of program.
“For people who qualify, I think it would be terrific,” Smith said. He said one of the problems in the affordable housing market is that so many people have trouble paying for closing costs, much less 20 percent down.
Smith said the credit union will have to choose its buyers carefully, since a second mortgage loan generally entails greater risk to lenders.
There are many benefits of home ownership.
Here’s one more and more people are beginning to realize: you can use your home as collateral and borrow needed money against it by acquiring a second mortgage.
While this has always been the case, it was just a few years ago when lenders and banks stopped curtailing the amounts - and restricting the circumstances - that allowed you to receive 2nd mortgages. There is now a wide selection of home loans within this category available to fit your needs.
Second mortgage interest rates
Thanks to competition among lenders, the 2nd mortgage interest rates on the market today are fairly reasonable. In some cases, interest payable is far below the prime lending rate, otherwise a conventional yardstick for second mortgage loans.
It is important to remember that your house will be designated as security for such a loan, so you be sure to choose the best financial deal out there; keep your budget limitations and long term income in mind.
The second mortgage vs. the first mortgage
A second mortgage is a loan taken after the first mortgage, secured against the same assets as the original. It is based on the amount of equity/interest/ownership you have in that property; or the difference between the current value of the property and the amount you owe on it.
Second mortgages are arranged for various purposes, such as financing home improvements, college tuition fees, debt consolidation or other emergency expenses. If you have gathered enough equity, another option is apply for mortgage refinancing on your home and borrow funds in excess of your current loan balance.
Typically, a second mortgage carries a higher rate of interest than a first mortgage. Therefore, if interest rates are low, refinancing becomes a more appropriate option. Because underwriting guidelines are less strict for second mortgages, it usually takes less time and effort to receive a second mortgage than to refinance a loan.
Choosing a second mortgage
When choosing a second mortgage, you can typically choose between three types:
Speak with our brokers and representatives today to learn more. Make sure you’re clear on every aspect of this process.