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Second mortgages are closed-end home equity loans that allow you to draw from the equity in your home so you can transform it into a safe haven and comfortable oasis without spending a ton out of pocket.
Home equity loans are best for homeowners that have a specific purpose in mind–maybe a backyard renovation or adding an additional room, or even debt consolidation.
A second mortgage loan is great for those who have a specific budget in mind, but what if you need more flexibility? Compare the differences between a second mortgage and a home equity line of credit to see which is the best option to achieve your goals.
A second mortgage refers to a secondary loan taken out on a property that already has an existing primary mortgage. It allows homeowners to borrow against the equity they have built up in their home beyond what is already mortgaged.
the loan period for a second mortgage is typically shorter than a primary mortgage as they are designed to cover expenses smaller than the cost of purchasing a home.
Your amount of equity is determined by subtracting the existing mortgage balance and any additional loans or lines of credit using the home as collateral from the current home value.
SunWest lends up to 80% of your total appraised value.
The minimum loan amount for a SunWest Second Mortgage is $5,000.
A first mortgage is the primary mortgage loan that goes toward paying a home. This could be the loan you used for the initial purchase of the home or a refinance.
For example, you purchased a home for $300,000 by getting a loan from Bank A. Bank A places a lien on your home that’s removed once you pay off the loan. This is your first mortgage. 5 years later, you decide to refinance for a lower rate. The refinance would also be considered a first mortgage because it is still the primary mortgage that pays for the home.
A second mortgage is a loan you take out in addition to your primary mortgage on the same property using the equity you have available from your home’s value.
For example, you owe $100,000 on your home, and it’s worth $300,000. You have $200,000 in home equity. You need a new stove, money for a wedding, and want to pay off some high-interest credit cards, so you take out a second mortgage for $100,000 with Credit Union A. Bank A has the primary lien and Credit Union A has a secondary lien on your home.
Both second mortgages and HELOCs (home equity line of credit) are loans you take out using the equity you have available from your home’s value.
The difference between a second mortgage and a heloc is that a second mortgage is a closed-end loan where you get a lump sum and you pay it back each month over your specified term; whereas, a HELOC is a revolving line of credit similar to a credit card. You are approved up to a certain limit and can continue to use up to that amount for a specified period.
That depends on your goals. A second mortgage is perfect if you only want to borrow a specific amount and pay it back. Second mortgages have a fixed monthly payment and a fixed interest rate.
For example, you want to finance the installation of a new, total home security system and pay it back with a moderate to large monthly payment.
A home equity line of credit is great for people who want more flexibility in how much they borrow and how frequently. With a SunWest HELOC, you can use the credit line for up to 5 years, paying a percentage of the balance each month. Once the 5-year period ends, the line is closed, and you pay a fixed monthly payment for up to 10 years. HELOCs also have a variable interest rate that can increase a max of 1% every 6 months.
For example, you will be doing home renovations that will include a lot of projects that you want to do one at a time, using the line as you go.
Usually no, but it depends on your mortgage lender. Most lenders require 15% - 20% equity in your home before qualifying for a second mortgage, and at 20% equity, private mortgage insurance (PMI) is no longer required.
If a second mortgage lender allows lending with less than 20% equity in your home, it can change when you are eligible to stop paying PMI.
*APR = Annual Percentage Rate. First payment will be due 90 days from closing of the loan. Loan interest continues to accrue during 90-day deferred payment period. Offer valid as of April 8, 2024 and subject to change at any time.
** LTV = Loan to Value.
See a representative for details.
1. Rates listed subject to change and based on the lowest current offer. Rates are determined by factors such as, but not limited to, loan term, credit score, and home value. Minimum and maximum loan balances may vary by term. All calculations listed in the chart above are estimates to illustrate loan and rate cost and should not be used as a formal quote. Please speak with a mortgage lender representative to quote your specific rate and payment.
