Denise Dutson's Blog
You’ve been paying off your mortgage for 10 years, building equity while making careful financial decisions to ensure that you’re on track to pay off your mortgage. So, all of those payments are essentially money in the bank for you, right?
Not quite. The equity you’ve built toward is home isn’t really accessible until you either fully pay off the home, sell your home and use your equity toward a down payment, or use it to take out a second mortgage.
In today’s article, we’re going to be talking about second mortgages--what they are, when to use them, and when you should seek out other options. Hopefully, by the end, you’ll be able to make a more informed decision.
What is a second mortgage?
A second mortgage is somewhat deceptively named. The process of taking out a second mortgage revolves around using your equity as collateral toward a second loan. That loan amount doesn’t have to be used toward a home, however. It can be spent pretty much at the discretion of the homeowner, as long as you stay within the spending limits of the loan terms.
Why take out a second mortgage?
Homeowners typically take out a second mortgage when an expense is tossed their way, whether foreseen or unforeseen. It could be a costly house or vehicle repair, a child’s education, or any other large expense that you might not have been aptly prepared for.
Types of second mortgages
There are two main types of second mortgages that homeowners qualify for. First is a standard home equity loan. You receive a fixed-rate loan that usually paid off over a loan term of 15 or 30 years.
The other type of second mortgage is a home equity line of credit (HELOC, for short). A HELOC is similar to a credit card in that you are approved for a certain amount but don’t need to spend the full amount.
Risks of home equity lines of credit
This type of loan is ideal for expenses that you maybe don’t know the full cost of. However, there is an inherent risk in taking on an expense that might go over the credit limit of your HELOC.
Just like with credit cards, interest rates vary. However, the interest rate is linked to something called a “benchmark rate.” When interest rates for the benchmark increase, so do your HELOC rates.
Aside from the variable interest rates, HELOCs can also prove to be difficult to manage for people who are already in credit card debt. So, it’s only recommended that you take out a HELOC if you are sure that you can stay on top of your monthly payments and are in good standing with other credit lenders.
Risks of home equity loans
Standard home equity loans aren’t without their own risks. For one, you’re putting your house on the line when you take out a second mortgage. So, before taking out a home equity loan on a new expense, be sure that you can manage that expense or you could risk losing your home.
Having a second mortgage can also make it difficult to refinance your home loan, which could cost you in the long run if it would otherwise pay off to refinance.
Benefits of second mortgages
Second mortgages do have their time and place. Home equity loans, for example, can help you achieve a lower interest rate than a typical loan if you have a great deal of equity built in your home. This could make the most financial sense over the long term.
Similarly, a HELOC might be a better option than a credit card for homeowners who don’t have a credit score high enough to land them a good interest rate.
Selling your home presents many opportunities and challenges. On the one hand, home sellers have an opportunity to earn a profit if they can stir up substantial interest in their properties. Comparatively, selling a home can be difficult, particularly for property sellers who are working in a buyer's market.
Ultimately, the home selling experience should be memorable for all the right reasons, and we're here to help you get the most out of the property selling journey.
What does it take to enjoy an unforgettable home selling experience? Here are three tips to ensure you can do just that.
1. Conduct a Home Appraisal
You love your home, but you also understand that your residence is far from perfect. As such, a home seller should perform a property appraisal before adding his or her house to the real estate market.
During a home appraisal, a property expert will examine your residence and identify any problem areas. That way, you can uncover "hidden" problems with your residence and correct these issues as needed.
A home appraisal is exceedingly valuable, especially for home sellers who want to get the best price for a property. The appraisal may require only a few hours to complete and will provide you with comprehensive insights into your home's strengths and weaknesses.
2. Prep Your Home's Exterior and Interior
Your home only gets one chance to make a positive first impression on property buyers, so why not make the most of it?
With a dazzling home exterior, you can boost your home's chances of generating plenty of interest from property buyers.
Home exterior improvements often are simple to complete. In fact, quick, easy tasks like mowing the front lawn or removing dirt and debris from walkways can make a world of difference in the eyes of homebuyers.
Don't forget to clean your home's interior as well. Mopping the floors, wiping down countertops and performing other home interior maintenance may help your residence stand out to property buyers during home showings and open houses.
3. Collaborate with a Real Estate Agent
With a real estate agent at your side, you should have no trouble enjoying a terrific home selling journey.
A real estate agent is a housing market professional who understands what it takes to sell a residence. He or she can provide extensive insights into real estate market trends and ensure you can make informed home selling decisions.
Typically, a real estate agent will set up home showings, negotiate with homebuyers on your behalf and promote your residence. This housing market professional also will respond to your home selling concerns and queries. By doing so, a real estate agent can help you accelerate the home selling cycle and optimize the value of your residence.
When it comes to selling your home, hiring a real estate agent is a must. This real estate professional will go above and beyond the call of duty to streamline the home selling process and help you can get the best results possible.
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The home selling journey sometimes can be complicated. Lucky for you, we're here to remove the guesswork commonly associated with selling a house.
Now, let's take a look at three tips to help you enjoy a fast, successful home selling experience.
1. Identify Your Home's Strengths and Weaknesses
You may have taken great care of your house over the years, and now, your hard work is about to pay off. In fact, if you assess your home's strengths and weaknesses, you may be better equipped than ever before to transform your residence's weaknesses into strengths.
Sometimes, it helps to conduct a home inspection before you list your residence. An inspection enables a property expert to evaluate your residence both inside and out. Then, you can receive an inspection report that details any underlying problems with your house and correct these issues prior to adding your home to the real estate market.
2. Set an Aggressive Initial Home Asking Price
Establishing an aggressive initial home asking price is paramount. Because if you set a competitive initial home asking price, you likely won't have to wait long before you start to receive offers to purchase your house.
To determine how to price your house, you should review the prices of recently sold houses in your area and other real estate market data. Plus, it may be beneficial to perform a home appraisal to receive a property valuation that accounts for your house's condition and the current state of the real estate sector.
3. Hire an Expert Real Estate Agent
Navigating the house selling journey often is tricky, particularly for sellers who choose to work alone. Fortunately, real estate agents are available in cities and towns nationwide, and these housing market professionals can offer expert guidance throughout the property selling journey.
A real estate agent understands the home selling journey varies from seller to seller. As such, this housing market professional will craft a custom home selling strategy to help a seller achieve his or her desired results. A real estate agent also will do everything possible to promote a residence to potential buyers and ensure a seller can optimize the value of his or her house.
Furthermore, a real estate agent is happy to provide a recommendation about how a seller should proceed with an offer to purchase a house. He or she can help a seller determine whether to accept, reject or counter a property buying proposal. And if a seller has any questions about an offer to purchase, a real estate agent is ready to respond to them.
When it comes to selling a house, it is crucial to get as much help as possible. If you collaborate with an expert real estate agent, you can gain deep insights into all aspects of the home selling journey. Perhaps most important, you can receive comprehensive assistance throughout the property selling journey and increase your chances of enjoying a fast, successful home selling experience.