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Cash Out Second Mortgage Loans Provide Multiple Financial Solutions

Karen Lawson
LoanBiz Columnist

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Using 2nd mortgage cash out loans for debt consolidation can help you streamline your finances while reducing extra fees and charges often associated with consumer credit accounts.  As with your primary mortgage loan, any type of cash out mortgage is secured by your home, and will effectively reduce the amount of your home equity until it's repaid.

How Much Home Equity Do You Have?

The amount you can borrow primarily depends on how much home equity you have. In general terms, you can estimate your home equity by subtracting the amount of existing mortgage loans from the current value of your home. Let's say your home is worth $450,000 and your mortgage balance is $350,000. You would have approximately $100,000 in home equity. (Please note that this is an estimate only, as loan charges and fluctuating real estate markets can influence how lenders determine your home equity).

Cash out Mortgage Loans and Loan-to-Value (LTV)

If you refinance your primary mortgage for more than 80% loan-to-value (LTV), your mortgage company will require Private Mortgage Insurance (PMI) as a condition of refinancing. You would have to pay the premiums for PMI, which is an additional cost that reduces the benefits of a cash out mortgage. Your LTV is the amount of your mortgage balance(s) divided by the present value of your home. Using the example above, if you divide the mortgage balance of $350,000 by a home value of $450,000 the LTV would be approximately 78%. To avoid paying for PMI, you would be limited to cash-out refinancing of about $359,000, with cash out of about $9000.  A cash out 2nd mortgage can potentially provide more flexible funding for purposes including home improvement, debt consolidation, or starting a business.

Accessing Funds with Cash out Mortgage Loans

You've seen ads showing glowing couples enjoying exotic vacations or polished professionals driving luxury cars. Although it's possible to use the cash proceeds from cash out mortgage loans for just about anything, it's important to keep in mind that 2nd mortgage cash out loans are secured by your home. If you default on payments under the terms of any mortgage loan, you could risk losing your home through foreclosure. Instant gratification can be tempting, but it's always best to consider all aspects of getting any kind of mortgage loan. Typically, 2nd mortgage cash out loans are used for debt consolidation and home improvement projects. Discussing your plans for a cash out mortgage with a professional financial advisor can help you discover your best options for using cash out 2nd mortgage financing. Financial needs can vary considerably, and mortgage lenders offer cash out 2nd mortgage loans to accommodate many circumstances. Contact several mortgage lenders to find a cash out second mortgage that works for you.


About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds BA and MA degrees in English from the University of Nevada, Reno

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