A close-ended loan is one where a set amount of money is borrowed and repaid within a specific period of time. There are a multitude of second mortgage products available and lender guidelines vary widely. Generally, loan amounts, interest rates and fees are tied closely to equity in the property and credit scores. Whether to do a first or second mortgage or whether to take a line of credit or closed-end loan depends largely on the purpose of the loan.
Second mortgages are ideal products for the following situations:
- Debt Consolidation: This is the most common purpose for acquiring a second mortgage. Typically, a second mortgage is paid off in a shorter period of time than a first.
- Home Improvements: The greater the equity in a property, the better the deal on a mortgage. Often, a borrower will take second mortgage to complete improvement projects. After the improvements are completed, the borrower refinances the first mortgage.
- Cash Out: Many borrowers use the equity in their properties to obtain cash to pay for college expenses, vacations, or any other purpose that requires a fairly sizable amount of cash.
- Eliminate the requirement for Mortgage Insurance.
