A second mortgage definition seems to be in order for all of America.
How do second mortgages work?
As a stay at home mom, read on and we will explain home equity loan and lines of credit.
There are several ways a stay at home mom can use the equity in her home for an immediate financial benefit.
You can refinance your home by learning about the second mortgage definition, or have someone explain home loan and lines of credit.
You’ve probably heard lots of scary stories about all of those things or may not understand what a second mortgage definition is.
Too often people decide to undertake them for the wrong reasons and end up in danger of losing their home!
Yet, there are situations where these can be good ideas.
How do second mortgages work?
Stay at home moms know learning how to curtail bad spending habits is the key to financial stability and staying away from using your home as a means to consolidate debt.
Second Mortgage Definition – Refinancing
For a stay at home mom willing to listen to someone explain home equity loans and refinancing, the idea behind such actions is to secure a better interest rate.
If your credit score is high, you have a good chance of being approved.
This can be a good thing if interest rates have dropped dramatically since you first financed the house. But be wary! You should only refinance with a fixed rate mortgage that cannot increase.
Often in these cases an ARM, or Adjustable Rate Mortgage is offered. This is just one part of the second mortgage definition, and while it sounds great, it could be a bad idea for several reasons.
Here’s why: in contrast to a fixed mortgage, where your interest rate and payment stay the same, an ARM is based on the prime interest rate. The prime interest rate is normally 3% more than the federal funds rate, and it’s the rate banks give customers with good credit.
If your credit has a ding or two, your ARM rate could be calculated at the prime rate plus a few percent more. Unfortunately, the federal fund rate, and thus the prime interest rate are subject to change. If they rise, so does your house payment.
Refinancing with an ARM is a trap many people fall into due to the time not being taken to properly explain home equity loan. It does gives you a very low rate for the first year, but in an economy where the rates start to rise rapidly, you run the risk of losing your house if the payment becomes so high as to be unaffordable.
An interest point or two may not seem like a big deal, but when it applies to your mortgage, it could become several hundred dollars per month. It is not uncommon for a $900 mortgage payment to climb to $1600 mortgage payment in a matter of months.
Refinancing again is not the answer either, because often the housing market will nose-dive as people scramble to deal with the increased interest rates.
How Do Second Mortgages Work?
A second mortgage? What does that mean for the stay at home mom and her family? Here’s a second mortgage definition: it’s sometimes called a home equity loan, and it is a mortgage against the house in addition to the primary mortgage.
Many people take out a second mortgage to pay off credit card debt, go on a vacation, or pay for a wedding.
As defined in our second mortgage definition some of these cause many home loans to turn upside down, with more being owed on the house than it is worth. The country is currently in a crisis situation because of the fact that so many people have upside-down mortgages!
When families take out the equity in their homes, their investment ceases to exist. Instead they are constantly trying to catch up, having added more to their monthly bills and length to the life of their debt.
In fact, when you look at second mortgage definition a little more closely, you’ll notice the most popular and widely advertised reason for a second mortgage is credit card debt consolidation.
Again, this does not really solve the problem, as most people go straight back out and charge their cards up again since they don’t learn from their mistakes. As a stay at home mom, you already know how important it is to implement good spending and saving habits before taking action that could jeopardize your home.
Your House is not an ATM
As parents, we want to set the example for our children as far as what healthy spending, not debt consolidation, looks like. Good old fashioned hard work and thriftiness can help teach your children the right financial path to take in their own future.
The one instance where a second mortgage might be a good plan is to finance a necessary expense, such as a vehicle. In this version of the second mortgage definition you might be able to get a better rate on a mortgage than you could from the car dealer and save some money.
Just be sure that your two mortgages together don’t total more than 80% of your total equity.
Explain Home Equity Loan Lines of Credit
These loans are encouraged by lenders and touted as a way to pay for home improvements or a trip to Disney World. According to the second mortgage definition, they are really nothing more than a second mortgage in disguise! These can be deadly if you get stuck and can’t pay your bills.
When someone tries to explain home equity loan, the lines tend to blur. Don’t be fooled. A line of credit is different than a home equity loan in that you apply for and receive a lump sum for a home equity loan, with set terms and a specific payback schedule.
A line of credit behaves more like a revolving credit card account, where you can make separate purchases at different times and the bank keeps track and adjusts your payments accordingly. These are only good if you use them to significantly better your life (such as a necessary, emergency home improvement cost), and you should be absolutely sure you can afford the payments.
If you are a stay at home mom, remember to weigh all your options, and don’t forget the second mortgage definition. Shop around before committing to a refinance, second mortgage, or get someone you trust to explain home equity loan or lines of credit to you. If it truly seems the wisest course, go for it. Budget carefully and spend wisely to avoid the possibility of losing your home if you hit a rough patch!
Do you have any advice for others on a second mortgage?