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Commercial Second Mortgage | Commercial Second Mortgage Advice + Tips |
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Commercial Second Mortgage
A Commercial Second Mortgage is an additional loan taken against a mortgaged property whose tenure runs concurrently with the original mortgage loan.
These loans are also referred to as property equity loans since they are loans given against the equity you hold on the property.
Since a commercial second mortgage is in effect a secondary loan, it does not get priority in the event of default. |
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Due to this extra risk, the interest rates on these types of loans are usually higher than those on the original loan.
A commercial second mortgage is ideal when you need a large amount of money either because you have urgent need for cash or need to undertake a project that requires a large amount of capital.
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You can also take a secondary mortgage loan for debt consolidation as part of the process of working your way out of debt. In this case, you can have all your outstanding short term loans and credit card balances paid off through funds gotten from the second mortgage.
When you do not have enough money for down payment to buy a house, a commercial second mortgage can be a way to raise the down payment. For instance, if you have only 20% down payment for a house and you require 30% to qualify for a mortgage, you can take a second mortgage on the same house to bridge the difference.
You can also take a commercial second mortgage for home improvement works. In this case, the loan works to improve your house and therefore increase the value of your house.
Second mortgages can be used to meet any other high cash need including education expenses, capital to start a business or for other investment ventures. However, you must be extremely cautious when taking this loan as it places your house at risk in the event that you default.
To qualify for a commercial second mortgage, the normal prerequisite is to already have a property on mortgage with the equity on the house being above or equal to the money that you want to borrow.
In other words, the amount of loan you qualify for is the difference between the market price of the house and the outstanding balance on your mortgage. The second mortgage will have a term of about 5 years.
The loan repayment schedule works pretty much like a regular mortgage. But you can opt for monthly repayment or a yearly lump-sum.
Advantages of a Commercial second mortgage
Since a commercial second mortgage is secured by a house, it attracts a much lower interest rate than an unsecured short term loan or credit cards. The security of a house also gives it a longer repayment period and thus lower repayment installments.
This means that the loan is easier to manage. Since houses are considered a strong security by financial institutions, you can secure the loan much faster. This makes the loan suitable as a source of raising a lot of cash in the short term.
Disadvantages of a Commercial second mortgage
The main disadvantage of a commercial second mortgage is that the security of the loan is on your house. Unlike credit card loans and other short term loans, in case of a default, your house may be sold to pay off the debt.
For this reason, you should be very cautious when taking this loan. If you are considering taking the loan to consolidate your bills, you must ensure that your debt solution strategy will keep you from falling back into an extremely high interest debt.
Another drawback for this loan is that you will have to pay high processing fees to get the loan. This thus means that the loan is not appropriate for accessing small amounts of money as the fees will take a substantial part of the loan.
Where To Access A Commercial second mortgage
You can access this loan at the same or a different financial institution from the one you took the initial mortgage from. However, it may be best to take the second mortgage loan from the same company financing your first mortgage.
This will save you on many procedures and paperwork since they are already the lien holder of your house documents. You could also save in fees since you might not require a new property value appraisal. |
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All About Commercial Second Mortgage
If you got a business, it can be a good idea to get commercial second mortgage -- but not always. Take a look at when it is a good idea to get a commercial second mortgage, and when it's not. |
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What is a commercial second mortgage?
A commercial second mortgage is often taken out when the first mortgage is taken out, simultaneously. They are most often used help new business owners get capital to start their businesses, and like homeowners who use home equity loans to get extra cash for expenses, improvements, or purchases, business owners will use commercial second mortgages to purchase things like inventory, equipment, or to raise capital for other reasons.
Established business owners may also take out a commercial second mortgage because they need to some cash for rapid expansion; this happens frequently, for example, if a business is growing rapidly; while the owner doesn't quite have the cash on hand to fund the expenses right then and there, he or she will in the very near future.
When is a commercial second mortgage a good idea?
The commercial second mortgage can be a good idea if your business is financially solvent (or if your finances are in order and you're just starting your business out, with little to no debt otherwise) and you need some quick cash to expand and grow.
When is a commercial second mortgage NOT a good idea?
A commercial second mortgage is NOT a good idea if you are in a financial quandary, are facing insolvency, and need cash fast. It's true that a commercial second mortgage can certainly get you that cash fast, but keep in mind: Commercial second mortgages are expensive; they can also get you in trouble very quickly because although they're easy to get (easier, usually, than traditional loans), you can put your business at risk if you get a commercial second loan you can't pay back. You may lose it if you're not careful.
Benefits and risks of the commercial mortgages
The thing is, a commercial second mortgage is of little risk to the lender. Typically, a commercial second mortgage's term is only about five years, meaning that the lender gets his or her money back quickly -- and makes significant interest on it at the same time. What it means to you, though, is that you've got significant repayments to make immediately, and you'll have to do so quickly. That means you'll have to have the cash handy very quickly as well, to make those repayments in a timely fashion.
If you've got a good, solvent business and you simply want some short-term cash that you can pay back quickly, a commercial second mortgage is certainly a viable option, but make sure to explore other options before you decide on taking out a commercial second mortgage. That's because if your business is solvent, there are probably less expensive options available to you, such as those that are available through traditional lending like a business loan; these can get you the cash at lower interest rates and with much more favorable payment terms.
Stringent terms
Especially with the recent financial meltdown, lenders are going to be much more strict about whom they lend money to. Therefore, make sure your financial records are in order, you've got a good credit rating, and you can show that your business is financially solvent before you decide to take out a commercial second loan.
Check with your original lender
If you do decide to take out a commercial second mortgage, one of the best places to look for financing is with your first lender, who holds your original commercial mortgage. Oftentimes, these lenders will give you much more favorable terms because you have already got one mortgage with them (assuming you've been responsible with your first mortgage); do shop around, though, and choose the lender with the best terms and interest rates.
Again, remember: It's not a good idea to take out a commercial second mortgage if you want some fast cash because your business is floundering, you're having financial difficulties, or you are otherwise insolvent. Taking on a commercial second mortgage in that instance may certainly get you some cash fast, but it will also likely put your business in jeopardy. Therefore, only consider taking out a commercial second mortgage if your business is solvent, doing well, and you just want some extra money to expand.
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What You Should Know about Mortgage Refinancing
Mortgage refinancing can be a boon to you as a homeowner if, for example, you purchased your home relatively recently, it's eligible for refinancing, and the interest rates are significantly lower now than when you purchased your home. |
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Or, perhaps your credit score has improved so that you qualify for a lower interest loan, thus saving a significant amount of money.
Mortgage refinancing can benefit you in a number of ways, depending on your situation. However, refinancing isn't always a good idea; let's talk about some situations when mortgage refinancing is and is not a good idea.
What happens with a mortgage refinancing?
With a mortgage refinancing, you are essentially paying off your old mortgage and taking out a new one.
Refinancing may be a good idea if, for example, interest rates have dropped compared to when you got your initial mortgage, so that you would save a significant amount of money in interest payments; this can also happen if your credit score has improved so that you qualify for a lower interest rate.
For example, if you currently have a 30-year fixed-rate $200,000 mortgage, and your current interest rate on that is 6%, if interest rates drop to 5.5%, you'll save $756 a year on payments, or $7,560 over 10 years on that mortgage.
When you refinance, you can also shorten or lengthen the term of your mortgage, depending on your situation. Oftentimes, for example, refinancing your mortgage will save you enough money that you can pay roughly the same mortgage payments (or very slightly higher) on a month-to-month basis, but refinance for a 15-year rather than a 30-year mortgage. This can save you thousands of dollars over the life of your loan.
You can see that with both of these scenarios, refinancing can save you significantly. Refinancing also lets you switch the type of mortgage you have, such as if you currently have an adjustable-rate mortgage but want to get into a fixed rate mortgage. (Generally, fixed-rate mortgages are a better idea than adjustable-rate mortgages, assuming you want to stay in your house for longer than five years.)
When is it not a good idea to do a mortgage refinancing?
It's not a good idea to refinance your mortgage, in general, if have had your mortgage for a long period of time. That's because over time, the portion of the monthly mortgage payment that goes toward your principal on the mortgage increases continually, while the portion that goes to the interest on that principal decreases continually. In effect, when you refinance, you basically start all over, so that you will be paying more interest and less toward principal.
Determining eligibility for mortgage refinancing
As with qualifying for your first mortgage, you'll also have to be eligible to refinance your mortgage. When you refinance, your lender will consider income and assets, credit score, debt, what your house is currently valued at, and how much you want to borrow.
If, again, your credit score is better than it was when you got your first mortgage, refinancing is probably going to benefit you. However, if your credit score is lower than when you got your first mortgage, it's not going to help you and may even hurt you.
The costs of refinancing your mortgage
It's also going to cost you something to refinance your mortgage. Assuming you qualify, you are probably going to pay roughly 3 to 6% of the outstanding principal in refinancing fees, in addition to any other costs, like prepayment penalties, you may incur by refinancing.
You'll also likely have an application fee for the processing of your loan request and the checking of your credit report. If you are denied, you'll probably still have to pay this feat, which will cost you from $75-$300, roughly.
You will also be charged a loan origination fee, which may cost you nothing extra, but may cost you upwards of 1.5% of the loan's principal. You may also have to pay points, depending on your lender.
You'll also likely have appraisal fees and inspection fees, which often are required before a lender will agree to refinance. Finally, there may also be attorney review fees and/or closing fees, which can cost you upwards of $1000.
Making the decision
Again, broken down on paper, if refinancing is going to save you significant money over the long haul (assuming you're going to stay in your home for the long term), it's probably worth the time and trouble to do it, assuming you qualify.
However, if you plan to move in the near future and won't be staying in your house, or if your financial situation is less rosy than it was when you bought the house such that you credit score is worse, that's when mortgage refinancing may not be a good idea. |
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Mortgage Refinancing
Mortgage refinancing is simply the replacement of an existing mortgage with a new one using the same property as security. The new loan allows you to extend the tenure of the older loan.
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Why consider Mortgage refinancing?
There are several reasons why one would choose to go for mortgage refinancing. They are also what one would consider the benefits of refinancing a mortgage. These reasons are:
1. Lower monthly payments by extending the tenure of the loan.
2. Take advantage of existing equity on the house to release money that you can use to finance other personal or business projects. This could range from major home improvement to start up capital for a business.
3. Mortgage refinancing can also serve to help you consolidate your debts. Once you cash out on your existing equity on the property, all you need to do is pay off any pending high interest debts using the money and thus channel your entire debt to the relatively lower interest mortgage.
What are the costs involved in mortgage refinancing?
A refinanced mortgage is effectively a rescheduled module. You will have to incur a number of costs during this process of securing a new loan. There are several fees involved.
You may have to pay a processing fee or be required to foot any legal costs. Sometimes these fees will not be levied distinctly but rather will be factored into the interest rate charged.
This is what it is important that when mortgage refinancing, your comparison of refinancing between different banks should not only look at the interest rate but also the value of the fees charged.
A bank may appear to offer one of the lowest interest rates in the market for refinancing but have exorbitant fees that if factored in, would make the bank more expensive than its peers.
Does it make sense to Mortgage Refinance?
There is no one-size-fits-all approach when it comes refinancing a mortgage. Circumstances will vary from one person to another. So as a general rule, you will need to weigh the pros and cons before you make a decision.
After all, you have only extended the tenure of the mortgage meaning you will have it for a longer time than before and must be careful that you can handle the extra burden.
That said, mortgage refinancing is a positive move if you can manage to successfully get a significantly lower rate of interest or reduced monthly payment.
When should you refinance?
There are a number of reasons that you should look at before you apply for refinancing. For starters, you should try and refinance when the interest rates are low.
It is possible that since you took the initial mortgage on a fixed rate, the rates may have fallen and you could be paying much more than you need to. You should also go for refinancing when you can get a longer tenure than before and thus reducing the instalments to make each month.
When should you NOT Refinance?
You should never refinance your mortgage by taking on a lower but variable interest rate loan to replace your high rate fixed interest rate. Doing so can prove costly. With property prices going through boom and bust cycles over the years, going for variable interest rates can be a bad decision.
As much as the interest rate in the present is lower than your fixed rate mortgage, this might be temporary and could be disastrous if it eventually ends up going higher than your past fixed rate mortgage facility.
How should you make your decision on mortgage refinancing?
Look carefully at your existing interest rates and the terms of your loan. Use this data to compare it with the mortgages from other companies while taking note that the new mortgage might have a lower interest rate on face value but numerous costs during processing and approval.
You will have to do some legwork and make a number of phone calls before you get the kind of mortgage terms that are close to or identical to what you require.
Also, before taking up refinancing you need to have already made up your mind what you would like to do with the equity released. It would be a recipe for financial ruin if you release the equity without having planned what you would like to do with the money.
Doing can see you easily squander the money. Take time to make your decision. You may need to postpone your decision for a number of days to weigh your options and consult further which is perfectly okay. |
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