Navigating home ownership can get very confusing for a good amount of individuals looking into Newburyport real estate. The basic thing about owning a home, is paying your mortgage every month, just like with any other bill or loan. That is simple. You make payments, there is no worry about a foreclosure, and you have a place to call your own for the rest of your life (or until you decide to sell). But many homeowners that you talk to will discuss a second mortgage. A second mortgage may sound as though they are making payments on another loan to pay for the house; however, this is not entirely the case.
While a second mortgage does go against the value of your house, it is not helping you pay off the cost of buying the home. When you go to take out a second mortgage, it is usually to pay for home improvement needs or various other debts that have been accrued over the years of home ownership. The difference between a mortgage and a second mortgage, is that the second mortgage goes against the equity of your home.
The equity of your home is the difference between the value of the home and the amount of the mortgage balance. So if the home was valued at $150,000 and the balance of the mortgage was $75,000, you would be able to get a second mortgage worth $75,000. While defaulting on your second mortgage payments will still lead to foreclosure, you are responsible for the cost of your mortgage, and this second loan as well.
A second mortgage can also be called a home equity loan or a home equity line of credit. While these two forms sound similar, they are slightly different.
- Home Equity Loan
- With a home equity loan, you get the whole loan upfront in a lump sum. When you receive the money, you are able to spend it on whatever you need right away. The interest rates are fixed on this type of second mortgage and it is important to note the payment intervals and pay on time.
- Home Equity Line of Credit
- A home equity line of credit allows you to use the money as needed. Rather than get the money upfront, you are able to use the money like you would a credit card, and only repay when you used a part of the loan. The interest rates on a line of credit tend to be more flexible than those of the loan, and it is just as useful.
With these two versions, a second mortgage is useful if you have a large amount of debt to pay off right away, or you are faced with major home repairs. When navigating into home ownership, it is important to consider whether or not a second mortgage is necessary for you. In Newburyport real estate a second mortgage is optional, and it is important to discuss all of your options before making a decision.