What does it mean to take out a second mortgage?

collateral
A second mortgage or junior-lien is a loan you take out using your house as collateral while you still have another loan secured by your house. Home equity loans and home equity lines of credit (HELOCs) are common examples of second mortgages. By taking out a second mortgage, you are adding to your overall debt burden.

What is a good loan to value ratio for refinance?

The rule of thumb is that your LTV ratio should be 80\% or lower to refinance. This means you have at least 20\% equity in your home. You may be able to refinance with a higher ratio, though, especially if you have a very good credit score.

What are the advantages of a line of credit?

The main advantage of a line of credit is the ability to borrow only the amount needed and avoid paying interest on a large loan. That said, borrowers need to be aware of potential problems when taking out a line of credit.

Are 2nd mortgages bad?

Second mortgages are riskier to lenders than first mortgages. That’s because in a foreclosure sale, the first mortgage gets paid off first. The second mortgage may not be completely repaid from the proceeds of the sale. Second mortgages are cheaper than most other loans because they are secured by real estate.

Is a second mortgage a bad idea?

To many home buyers the idea of taking out two mortgages on the same house sounds frightening. However, a second mortgage—also known as a second trust junior lien—makes good sense in the right circumstances and can actually save you money. Second loans require fees and closing costs, just like first mortgages.

What percentage of home value can you refinance?

20 Percent
The 20 Percent Equity Rule When it comes to refinancing, a general rule of thumb is that you should have at least a 20 percent equity in the property. However, if your equity is less than 20 percent, and if you have a good credit rating, you may be able to refinance anyway.

Can you put more money down when refinancing?

In most cases, refinancing involves replacing your current home loan with a new mortgage for the same amount. But homeowners also have the option of putting down additional money to decrease their mortgage balance. You could use a cash-in refinance, where you make a lump-sum payment to reach 20\% equity.