| Second homes account for a full 40% of all homes | | | | A second mortgage is a subordinate loan on the same |
| sold in America. According to a recent annual report | | | | property. The main two types of second mortgages |
| by the National Association of Realtors (NAR), 27.7% | | | | are fixed interest rate home equity loans and |
| of all homes purchased in 2005 were investment | | | | adjustable rate home equity lines of credit (HELOCs). |
| properties and 12.2% were vacation homes. About | | | | A home equity loan is generally a lump sum loan, and a |
| 65% of second-home owners surveyed by the NAR | | | | HELOC is a revolving credit line, similar to a credit card, |
| said they considered their second homes better | | | | where interest is only paid on the amount borrowed. |
| investments than stocks, and 29% said they planned | | | | Second mortgages provide homeowners with more |
| to buy additional properties within two years. | | | | flexible options when it comes to spending and |
| Cash-out mortgage refinancing and second mortgages | | | | repayment. Depending on the homeowner's needs, |
| are typically the ways homeowners finance second | | | | they can borrow all or some of the home's equity. |
| home down payments, home improvements and | | | | Second mortgages also offer homeowners the choice |
| home construction on primary residences and second | | | | of a short-term or long-term loan. |
| homes. A cash-out mortgage refinance involves | | | | The decision to cash out equity with a mortgage |
| refinancing an existing mortgage with a higher | | | | refinance or to apply for a second mortgage depends |
| borrowed amount, which results in a single loan and | | | | primarily on your needs and your ability to repay the |
| loan payments that can be stretched over a long term. | | | | new loan. If you have a low interest rate and |
| Cash-out refinances typically have lower interest rates | | | | favorable terms on your existing mortgage, you may |
| than second mortgages, and can either be fixed | | | | want to consider a second mortgage for financing the |
| mortgage rate loans or adjustable rate mortgages | | | | down payment to purchase your investment property |
| (ARMs). | | | | or for buying a vacation home. |