Ways To Settle A Second Mortgage
Mostly Home equity loans and Home equity line of credit (HELOCs) are used by the borrowers for a variety of reasons such as for debt consolidation or home improvements. An equity loan or HELOC generates a second mortgage lien against the borrower’s property as well as the second mortgage payment that is due each month.
Getting out of a second mortgage will allow the borrowers to write one mortgage check each month. This means getting another loan in addition to the original mortgage of the borrower that uses the home of borrower as security because the home of the borrower is on the line so the stakes are high if the borrower choose to take out a second mortgage. It is important to consider that the financial implications of the new loan, the types of products available and the intended use of the money by the borrower. If the borrower find himself in financial trouble and the value of the home has dropped then the stripping off the second mortgage can get rid of the debt.
- Definition of second mortgage: –
A second mortgage the borrowers to access the equity on their home, which is basically the difference between the balance of the original mortgage and the value of the home. When homeowners take out any sort of mortgage, the bank files a lien against their home. This is a legal action that allows the bank to eventually take possession of borrowers ‘home if they default on the loan. In the case of a second mortgage the lien is filed in “second position,” which means that the bank holding the new loan of borrower is second in line to receive proceeds from the sale of their home if they do not make their loan payments.
- Types of second mortgage: –
Basically, second mortgages come in two basic types; home equity loans and lines of credit. If borrowers take out a second mortgage in the form of a loan, then they will receive a lump sum of money based on the equity in their home, then they will repay the money in the installments that is over a fixed period of time. If the borrowers choose a line of credit, then the second mortgage will function more like a credit card. The borrowers will have a credit limit that can be reused as they pay down the balance. The amount of money that borrowers receive from an equity loan or have access through a line of credit that will depend on how much equity is available and the lending standards of the bank.
Here are some common ways to get out of a second mortgage;
- The borrowers should pay off the statement of their mortgage lender. A payoff statement can give an idea of the amount to the borrowers that is needed to satisfy the second mortgage lie of the borrower and will display late fees and penalties of prepayment.
- Borrowers have to access the funds from their savings or investments to pay off a second mortgage. Borrowers should use money that they have to satisfy the payoff balance.
- Borrowers should refinance their primary mortgage to pay off their second mortgage. They have to contact to their primary lender or any bank that will refinance their mortgages to create one mortgage loan.
- Borrowers have to declare bankruptcy to get out of a second mortgage. They may have the obligation ignored if a court finds that the borrowers lack the ability to pay their second mortgage.
- Borrowers should check their most recent mortgage statement for the outstanding principal balance on their primary loan. They can also contact their mortgage servicer and ask for the loan balance.
- Borrowers should talk to a bankruptcy attorney to find out if they are eligible to file for Chapter 13 bankruptcy. To qualify for this, they must show the bankruptcy court that they have enough income to pay their monthly expenses and make the payments on secured debts such as their first mortgage and auto loans.
- Borrowers are advised to get credit counseling. According to the Federal Trade Commission, current bankruptcy law requires the borrowers to complete a government-approved credit-counseling program within 180 days before they can file for bankruptcy. If they cannot afford to pay the fee a counseling organization charges then credit counseling agencies approved by the U.S. Department of Justice Trustee Program must provide services at either a reduced rate or for free.
- Borrowers have to pay a portion of the debt as outlined in their Chapter 13 repayment plan. The court must approve the plan and will state how much they must pay the second mortgage holder. Once they complete the repayment plan within three to five years then the court will discharge any debt remaining on the second mortgage.
- Uses of second mortgages: –
The borrowers can use the cash from a second mortgage any way they wish for the example to make home improvements, pay for tuition, buy a vehicle or finance a vacation. Understanding what they intend to use the proceeds for can help the borrowers to determine the right type for them. If they wish to make one large purchase, then a home equity loan with a fixed amount and a fixed payment may be best.