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Dustin Meshberger
Branch Manager- ENG Lendinng, Division of Bank of England
Branch Manager- ENG Lendinng, Division of Bank of England


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Benefits of a Second Mortgage: Second Mortgage or Refinance

A second lien is also known as a second mortgage. It is different from refinance in that your mortgage arrangements remain constant, but you pay an extra monthly repayment for the loan. A second lien and second mortgage are fundamentally the same, and are based upon the equity of your home.

Real Estate Equity
Real estate equity is the difference between the current value of your home and what you still owe on it. Let’s say you purchased your home with a $400,000 mortgage and have repaid $150,000 of that capital sum. Your home has been valued at $750,000. Your equity will be $500,000 (work it out.) If you need cash for extensive repairs or improvements, or even to buy a new boat, you can raise some on your home. Your equity is $500,000 so you can raise a good proportion of that as a second lien – or second mortgage. These terms mean the same thing. You could also use your equity to refinance your mortgage. This means scrubbing your existing mortgage and taking a new one based upon what you currently owe. You can extend your repayment period and reduce your monthly repayments. Some people find this an attractive option, particularly if they are beginning to struggle with the existing monthly repayments.

Mortgage Refinance
They have a lot of equity (500,000) but are still paying for their original $400,000 mortgage! It makes sense to them to refinance the mortgage as they are paying less. However, is this a good decision, and would they be better off by refinancing the existing mortgage or taking a second lien on their home to fund the improvements (or vacations!)? If you refinance your mortgage, you will have high closing costs and have to pay private mortgage premium costs on your mortgage. Loan approval can take some time, and the entire process can be lengthy and stressful. This is not your first mortgage, remember, when you were excited and looking forward to owning your first home. This time round you do not want it to be a long, drawn out affair.

Second Lien Advantages
A second lien or second mortgage (same things) is significantly quicker to arrange. You keep paying your existing mortgage repayments, but also pay for the second mortgage each month. If you are confident of meeting both payments, then this is the way to go. However, keep in mind that if you fail to maintain either set of payments then you could lose your home. However, if you take this path then you will save on private mortgage insurance and your tax deduction will also be more attractive. Not just that, but you will be able to avoid escrow payments if you want and your equity will increase at a faster rate. Equity is always good to have when times get bad!

Which is Best?
So which is best for you when you want extra cash to carry out home improvements or pay your kids’ college fees? A second mortgage or refinance your home? The balance seems to lie with the second mortgage, but keep in mind the big negative! You could lose your home by failing to make the payments. That said, the second lien seems just to swing it – but the choice is 100% yours.

Tags: get a second mortgage, Mortgage News, mortgage refinance, need a second mortgage, second mortgage
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Learn About Different Loan Options - Find the Right One for You
There are several mortgage options open to you when you are buying your home. The different types of mortgage loans available each have their own benefits and disadvantages according to your personal circumstances. Here are four types of regular mortgage options that you can consider when buying property.

Fixed Rate Mortgage
With a fixed rate mortgage you are taking a bit of a gamble. If the time is right, and interest rates are generally low, this might be worth the gamble. With this mortgage, you agree to a fixed interest rate to be applied over the entire life of your mortgage whether that is over 15 years or a full 30 years.

If mortgage rates remain fairly stable or increase over the period of your mortgage, then you will generally gain. However, if they drop then you will lose out. One of the man benefits of a fixed rate mortgage is peace of mind. You know exactly what you will be paying each month for the next 30 years.

You will not be subject to a hike in your monthly repayments if the interest rates generally rise. For many people that benefit is well worth the possibility of the rates dropping. They know that they need not spend the next 30 years keeping an eye on the interest rates, hoping they don’t rise.

Adjustable Rate Mortgage Options
With an adjustable rate mortgage you will start off with the lowest rate available to you. The interest you pay over the next 15-30 years will then vary according to an index that is broadly based upon inflation and the price of mortgage derivatives and other bonds offered on the stock exchange.

The Fed can increase interest rates to curb inflation. Mortgage rates also increase with a rising demand for home ownership. Mortgages of the same type are generally bundled together and then sliced into smaller portions known as tranches.  These are traded as mortgage derivatives on the stock exchange. Interest rates can rise and fall with changing prices of these securities.

In short, with an adjustable rate mortgage, your interest rate can rise and fall many times during the tenure of your mortgage. Your rate will not change with each slight fluctuation, but will be adjusted periodically in line with general trends. Sometimes you will win and sometimes you will lose. If you have a large mortgage and cannot financially tolerate an increase in your rate, then a fixed rate mortgage might be best for you.

Fixed Then Adjustable Rate Mortgage (Hybrid ARM)
With this type of mortgage, your interest rate is fixed for an initial period such as 2-3 years, and then switched to an adjustable rate. The fixed rate portion is usually set at a low rate of interest to enable you to pay a smaller amount for the first few years.

You then switch to a variable rate once you are earning more money. This is a good option for young people buying their first home, and who expect reasonable salary increases over the next 2-3 years. It makes home purchase more affordable in the important early years. Over 30 years, for example, a 3-year fixed interesdt period would be referred to as a 3/27 mortgage loan.

Deferred Interest Mortgage
With a deferred interest mortgage, interest payments are deferred for a period of time, and amortized with the rest of the loan. In other words, you pay the deferred interest over the remaining period of the loan – although you will be paying interest on the deferred interest! Even so, many people find that this one of the more attractive mortgage options, enabling them to purchase a larger home than they could otherwise afford. They go back to a regular mortgage when they are earning enough to afford the repayments. This is an option to a hybrid ARM.

Choosing From These Types of Mortgage Loans
When choosing one of these mortgage options you should first analyze your own finances. Determine what you can afford to pay now, and what you might afford in 2-3 years time. If you overestimate your future income, then you could be in trouble. That is why you should always take the advice of a mortgage professional when considering these different types of mortgage loans.

Tags: 5 Year ARM, financial goals, fixed rate mortgage, hybrid ARM, Mortgage News
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Are you getting ready to sell your home? If so there are three ways to improve the curb appeal of your home that will help motivate buyers to make an offer... 

1 Tidy up
2 Clean up
3 Paint and Renew

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Should I wait for HARP 3?

There is so much hype about Mel Watts being the new regulator of Federal Housing Finance Agency (FHFA) and the potential of him promoting a new HARP 3 program that many homeowners who are under water and should be refinancing today are getting caught up thinking that HARP 3 will somehow get them a lower payment than the current HARP 2 program. The fact of the matter is that any changes made to the HARP program will only effect who qualifies and never effect your interest rate or monthly payment.

Most homeowners who have an FHA mortgage are unaware that they can still qualify for a HARP loan if they have a bankruptcy, foreclosure or even missed a recent mortgage payment. With interest rates at historical lows combined with flexible lending qualifications, most homeowners who are upside down in their home typically save around $300 per month. What can you do with an extra $300/month ($3600/year x 30 years = $108,000 over the life of the loan)?

Some of our clients use the extra money to pay for things like health insurance, a new car or even pay down their home loan even faster thereby saving thousands of dollars in interest payments!

It only takes a couple of minutes to see if you qualify and there is absolutely no cost to you. 

Dustin T. Meshberger
NMLS 412459
Production Team Manager, Mortgage Division
Emery Federal Credit Union
Phone: 877.867.0027
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