Home improvement loans :: Second mortgage loan for home improvement

Mortgage Lending Guide: Home Improvement Loans

Home Equity / Home Improvement Loans

A home equity or home improvement loan is a second mortgage on your home. The amount of such a loan is based on the current market value of your home as compared to the amount you now owe.

Home equity and home improvement loans are available up to, and sometimes beyond, the current value of your home. However, your interest rate will be lower if you don't go over 80% loan to value.

Home Equity Loans as a financing tool

Home equity loans , or "Seconds," are sometimes used for creative financing in conjunction with the first mortgage. While this is a more complicated method, it can eliminate the cost of Private Mortgage Insurance as long as the first is 80% of loan to value or less.

There is no mortgage insurance charged on "Seconds." The interest rate, however, is always higher than on a first mortgage. The reason is increased risk to the lender.

If you should default on your first mortgage, the only way the second lien holder can protect his or her interest is to step in and take over that first mortgage. Therefore, the second lien holder is in a position of risk.

Home Equity Loans as a source of cash

You can take a Home Equity Loan for any purpose you wish. The money comes back to you. That means you can use it to invest in a new business, put a down payment on another piece of property, or even take a round-the-world cruise.

You should, however, treat this money with care, because it is a lien against your primary residence.

Cash out loans generally carry a higher rate of interest than loans which reduce your debt, as in:

Home Improvement Loans

This loan can be a source of cash, or you can reduce your interest rate by using it to pay bills incurred in remodeling or otherwise improving your home.

You turn the bills into the closer, who uses proceeds from your loan to pay them, thus showing that you have incurred no new debt.

As with Home Equity loans, when you put cash in your pocket you will pay from ¼ to ½ % higher interest. Before you make the choice, talk over your options with your Mouse House Mortgage loan advisor.