If taken properly, a homeowner will not find a more
effective financial option than to take a second mortgage on
their property, most of the American consumers have become aware
of revolving debt and the bad effect it can have on them and
their loved one – not just now but in the future.
Practically Second mortgage can be used for anything, but
typically they are taken to pay for outstanding education
expenses, repairs of your home or property, to procure higher
value real estate, and to pay off high interest rate credit
cards as well as to consolidate or eliminate other debts.
Naturally, it wouldn’t be fiscally sound to take out a second
mortgage if it would not be in your best interest as a homeowner.
With so many refinancing, borrowing, and other transaction
options available to the modern consumer, when is taking out
a second mortgage the right way to go? A second mortgage is
a good choice for the homeowner who has a need for a substantial
amount of cash and also has sufficient equity in a home.
Essentially, a Second mortgage is a second lien against the
value of the property, one which is paid back in monthly installments
exactly the same as was the case with your first mortgage.
Unlike the interest on unsecured loans and credit cards, second
mortgage interest is generally tax deductible, and is therefore
a viable solution to rid yourself of high interest rates which
is often associated with other forms of debt.
An often overlooked nuance of obtaining a second mortgage
is the very same due process which was involved in the first.
All too often homeowners will take out seconds from the same
financial institution used to obtain the initial mortgage.
This stands to reason, as the mere thought of mortgaging your
home once is overwhelming enough for a surprising amount of
individuals who might otherwise benefit from the act to avoid
it altogether. A Second mortgage, though, is a very important
financial decision (just as, if not more important than the
first) and should be treated with the same diligence and research
as the first. Obtaining information through several lenders
or brokers on the second mortgage regarding home mortgages
such as; how much can you afford, as well as ascertaining
how much of a down payment you will need, and find out all
the costs involved in the loan is as vital to the process
the second time around as it is the first. Simply seeing the
monthly payment or the interest rate on the lien itself is
not enough. Knowing information about the same loan amount,
loan term, and type of loan will allow you to compare the
information from each lender and broker.
The borrowers mainly are concerned with only getting their
loans approved. They don’t really think as to what happens
to these loans or how the lenders can afford to lend you so
much of money. Here we attempt a detailed study of these factors
with reference to the secondary mortgage market.
The mortgage market works in a cycle. There are basically
two markets
- Primary mortgage market
- Secondary mortgage market
The primary mortgage market involves two broad categories
- The mortgage originators: this comprises depository institutions
like commercial banks and thrifts and non-depository institutions
like mortgage banks and brokers.
- The Secondary market conduits: this comprises the three
GSEs-Freddie Mac, Fannie Mae and Ginnie Mae , and other private
investment banks
- This is where the loan portfolios are held and then sold
to the secondary market. In simple words the loans that you
take are accumulated with details and they are sold to the
big wigs.
The loans are sold in the secondary mortgage market
to investors. This is done in three ways:
- The loans are sold individually-this happens especially
with large loans
- The loans of the same type, meeting the same underwriting
standards are pooled together into Mortgage backed securities
(MBS).
- Bonds are sold which are backed by the loans.
- The monthly payment that you make to your lender is actually
transferred to the GSEs and they pass it on to the investor
market. But the last transaction involves a cut; the guarantee
fee is deducted and allowed into the market.
- At Wall Street investors buy these loans either whole or
packaged and accordingly the loans are financed. These transaction
costs need to be borne by the borrowers. But the benefits
that the secondary market reaps offset these.
Benefits of the secondary mortgage market
- Reduces the interest rate
- Maintains liquidity
- Restructures portfolios
- Distributes risk
- Increases the homeownership
- More home mortgages are made available
- Provides financial stability to lending institutions
- Fosters economic growth
- Provides more employment opportunities
- Attracts foreign capital markets to invest
In the earlier days mortgage market only allowed
conventional loans to be sold but today the scenario is
changing .Nowdays, even sub-prime loans are gaining entry and
they are helping the loan originators to fund more such loans
.This cycle is essential to the very sustenance of the
mortgage industry
So, basically it all depends on the investors and how much
they buy and what price which defines the well being of the
mortgage field.
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