Second Mortgages 101: Know the Interest Rate & Payment Terms Before You Commit

A second mortgage that promises debt consolidation, low home equity rates, low interest rates, no equity requirement, and options for a loan or line of credit...Does that sound like a good deal? The problem is that you are not sure what all of this terminology means, and are reluctant to ask at the risk of sounding like an uninformed homeowner, so youve decided that a second mortgage is not for you. Does this sound familiar? If so, then read on to learn the basics in three short lessons:

Lesson One: What does the term Second Mortgage mean?

When you bought your house, you took out a loan, (your mortgage) which is now in first lien position. (in position to be paid first) When you take out a second mortgage, your new loan moves into second lien position. This usually means that your first mortgage will be paid off by the second one, which will then move into first lien position.

Lesson Two: The Benefits of A 2nd Mortgage

First, you will most likely be able to pay off your first mortgage, and be left with just the second one, which will be even more beneficial if you were able to obtain a fixed or lower interest rate on mortgage number two. A second mortgage is also a useful tool for debt consolidation and a way to get money for home improvement through options like 125% home loans, home equity loans and home equity credit lines. Last, but not least, according to businessfinance.com,the second mortgage typically carries a term of no less than five years of interest-only payments, which is definitely something to consider.

Lesson Three: The Essential Mortgage Interest Rate Glossary:

Federal Interest Rate: the target rate of the Federal Reserve System and chairman, Alan Greenspan. The actual rate is determined partly by the target rate and also by the U.S. economys inflation and deflation.

Prime Rate: The current interest rate reported by the Wall Street Journal. The Journal bases this rate on the rates of the 30 largest U.S. banks, and adjusts its rate accordingly.

Variable Interest Rate: A loan with a changing interest rate according to the changes in the Prime and Federal interest rates. Many loans, like the adjustable-rate mortgage, have these types of rates.

Fixed Interest Rate: An unchanging interest rate that is locked in at the time of the loans origination.

Congratulations! You now know the basics when it comes to second mortgages, and now you can make a more informed decision. Be sure to expand your financing vocabulary and product knowledge base before you apply for a loan. Then you will be able to review all of your options with your loan officer before committing to any type of loan.

Aura is an aspiring free-lance writer who has written many home equity mortgage related articles. She was the Co-Editor of The Driftwood, a college newspaper published at her San Diego campus at Point Loma University. You can read more of her loan articles at BD Nationwide Mortgage & Equity Loans and get more information about debt consolidation & second mortgage loans to 125%. If you need current interest rates in California, Colorado, Connecticut, Florida, Georgia, Maryland, Massachusettes, Maine, Michigan, Virginia or Washington visit the fixed rate department for Prime Home Equity Loan Rates.

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