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Think about the California second mortgage

Posted by  on Jul 06, 2010
 
Homeowners often confuse the differences between a California second mortgage and home equity loan. In California, prices and interest rates vary so drastically that depending on where a California mortgage is applied for could mean a difference of thousands of dollars. After all, a California second mortgage is a type of home equity loan. But more often than not, home equity loan is used to describe a home equity line of credit, which a home in California can accrue after a number of years after the original purchase. Anyone that wants to take advantage of the equity that built up in their home will need to decide if a home equity loan or a true California second mortgage is best for their situation.

Before deciding which might be better for different particular purposes, it is important look at some of the basics of each. A California second mortgage pays out a fixed sum of money to be repaid on a set schedule, like an initial mortgage. Unlike refinancing, the California second mortgage does not take the place of the first mortgage. A California second mortgage is typically offered 15- to 30-year loans with a fixed rate of interest. Like the initial home loan, the rate of interest and points (if any) will be based on the borrower’s credit history, the price of the home, and the current mortgage interest rates. While the interest rate on a California second mortgage may be a little higher, the fees are generally lower.

A home equity loan, however, is similar to a credit card, and it may even include a credit card to make purchases. Like credit cards, as well as the California second mortgage, interest is charged and the amount borrowed is based on creditworthiness.

To determine the limit of the California mortgage, lenders will look at the appraised value of the home and start their calculations at 75 percent of that value. They then subtract the outstanding balance owed on the California mortgage. If a California home was appraised at $200,000, the lender would typically look at a maximum of $150,000 or 75 percent. If the owner had paid off $100,000 of a $180,000 loan, the lender would then deduct the remaining $80,000, which would mean there would be a maximum of $70,000 available on a line of credit on a California second mortgage if the owner has a very good credit history.

Current financial needs will help determine which type of loan is right for the California homeowner. If money is needed for a one-time expense, such as building a new deck or paying for a wedding, it would probably work best to look into the fixed-rate California second mortgage.

There might, however, be a recurring need for extra money, such as tuition payments, in which case a home equity loan might fair the owner better than the typical California mortgage. A line of credit allows the homeowner to borrow when money is needed and, if the money borrowed is paid back quickly, a lot of money can be saved as compared to the California second mortgage. However, if having another credit card in the wallet would tempt money spending more often, then the typical California home loan is a wiser choice.

Once an initial determination is made about which loan might be right, the homeowner will need to discuss the details with a lender. While California second mortgages usually operate in the same manner as an initial mortgage, lines of credit are different. Because they feature monthly payments, make sure to review the fine print carefully.

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