Second Mortgage Bad Credit Financing

Second mortgage bad credit financing could be a smart move if you have had money problems resulting in a low FICO score. You will probably have to pay a higher interest rate, however, second mortgage bad credit financing will still cost you less than other forms of borrowing.

Many homeowners are checking out second mortgage financing instead of refinancing their first mortgages. Second mortgages have a shorter term than  firsts, usually five to 15 years. You can choose either a fixed-rate second mortgage or an adjustable-rate second mortgage.

With a fixed-rate second mortgage, your monthly payments will stay constant, except for property tax and insurance variations. With an adjustable-rate second mortgage, your payments will rise or fall with whatever index the interest rate is tied to.

Another option for second mortgage bad credit financing is a line of credit that operates much like a credit card. You can draw funds from the line as needed, up to the approved limit. Your monthly payments vary according to how much money you have actually borrowed.

Second Mortgages and Equity
Unless you paid for your home in cash, you have a first mortgage with a bank or lender. It’s probably a long-term loan—25 to 30 years. Your monthly payments are a combination of principal and interest, and if you have a fixed rate loan, the payments don’t vary.

As your pay down your first mortgage, and as your house appreciates in value, you may want to draw out some of the equity for other purposes, say, to make home improvements, to consolidate high interest debts, to buy a car or to pay for a child’s college education.

One reason people hesitate to get a second mortgage is that they don’t want to hassle an overwhelming amount of paperwork. But second mortgage financing isn’t as hard to arrange as you might think.

Financing Costs
As part of the second mortgage financing, the lender charges up-front fees for closing costs, which include title searches and insurance, application fees, appraisal, escrow charges, etc. Most lenders will let you wrap some of these expenses into the loan itself. And then there are “points.” One point equals one percent of the loan amount. You can “buy” a lower interest rate by paying points up front.

Seventy percent of all mortgage applications in 2003 were for home refinancing. One reason the other 30% of US homeowners have not yet refinanced their first mortgages or taken out second mortgages is that they’re holding out for lower rates. But as the economy improves, the chances of lower rates decline.

According to Bruskin/Goldring Research, “There’s 3.2 trillion dollars worth of untapped equity in the hands of homeowners today.” Your home is probably your largest asset. It’s an investment that grows in value as home prices continue to rise. You can easily turn this passive asset into ready cash to improve your financial situation with a second mortgage.


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