Interest rates on second mortgages vary according to property, credit history, loan-to-value ratio's and credit scores. Be sure to ask for a good faith estimate and truth-in-lending for full disclosure of closing costs and annual percentage rate.
It is possible to borrower 95% and even 100% of the home's value. These higher loan amounts usually have less favorable terms such as higher closing costs and/or higher interest rates.
Home Equity Line of Credit
We are often asked what is the difference between a second mortgage and an equity line of credit. With a second mortgage, all the proceeds of the loan are disbursed at once. With the equity line, the borrower is approved for a maximum loan amount but can take the proceeds as necessary.
For example, a $50,000 second mortgage would result in a proceeds check of $50,000 less closing costs. The line of credit would also produce the availability of $50,000, however the borrower can take advances as they are needed. Interest would only be paid on the actual amount advanced, and as the loan is paid back the funds would be accessible again without having to obtain new financing.
125% Loan-to-Value
Be careful with this financing. Make sure you understand the consequences of this loan. If you borrow $125,000.00 and the value of your home is $100,000.00, it could be many years before you have any equity in your home. In fact, it may be 7 years or more before your loan balance equals your home value, depending on real estate appreciation in your area and prepayment of the loan principal. Be sure you know all the facts, and evaluate the consequences. Consider appreciation of property values in your area and also ask about prepayment penalties. Request an amortization schedule to estimate how long it will take to break even.
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