It is when an agreement is made between the buyer and seller of a property, containing the purchase price and contingencies of the sale. Purchasing can involve paying for the home with cash or by getting a home mortgage loan to pay for it.
Paying off an existing loan with the proceeds from a new loan, usually of the same size, and using the same property as collateral. In order to decide whether this is worthwhile, the savings in interest must be weighed against the fees associated with refinancing. The difficult part of this calculation is predicting how much the up-front money would be worth when the savings are received. Other reasons to refinance include reducing the term of a longer mortgage, or switching between a fixed-rate and an adjustable-rate mortgage.
Loan secured by the home owner's equity (market value of the property less balance on the first mortgage) in a property that is already mortgaged. Second mortgages are junior (subordinate) to the first mortgage and, in case of a foreclosure sale, are paid out only after the full satisfaction of the first mortgage. Both mortgages run concurrently. Next are two examples of 2nd Mortgages:
Home Equity Loan
Equity = the current market value of a home minus the outstanding mortgage balance. Home equity is the portion of the home which is unencumbered, or has no money borrowed against its value. This is what a home equity loan borrows against. Although that equity cannot be sold, banks will lend money against it. Home equity loans may offer tax savings in some cases. See your tax professional to find out the rules. Home equity loans are often used to consolidate other debt with high interest rates (like credit card debt), to finance large expenses (such as college or a wedding), or to purchase other costly items.
Home Equity Line Of Credit (HELOC)
A 2nd Mortgage as a line of credit extended to a homeowner that uses the borrower's home as collateral. It may provide the borrower with a checkbook or a credit card that is used to borrow funds against the home equity. Funds borrowed from a traditional home equity loan start accruing interest immediately after the lump sum is disbursed; funds borrowed from a home equity line of credit do not begin accruing interest until a purchase is made against the equity. This line may be re-used repeatedly. Interest is usually charged on a predetermined variable rate, which is usually based on prevailing prime rates.
Homepath loans are a special program for purchasing foreclosed Fannie Mae-owned properties. This loan requires no appraisal, has extremely low down payment, and allows for investors and owners to purchase homes up to 4 units.
HomeSteps is a special program for purchasing foreclosed Freddie Mac-Owned properties. This loan allows for low down payments, low fixed rate mortgage and no mortgage insurance premiums. This is a little known program which can help you get a great deal on a foreclosure home.
These loans are insured, sponsored and/or partially guaranteed by different government entities. These are helpful loan programs for primary residences. The rates are competitive with conventional loans. See our government section under “Specializing in”.