Cash Out Second Mortgage Loans Provide Multiple Financial Solutions
Karen LawsonLoanBiz Columnist
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
