Question:

How much can I borrow with a closed end second mortgage?

Answer:

A closed-end second mortgage is convenient to take for a one-time big purchase or a home improvement project and tax deductions are available. A closed-end second mortgage is a loan taken in a lump sum and unlike revolving lines of credit like the HELOCs, involves shorter repayment period. This type of loan is also taken against the equity of your home but has to be repaid for a period of 5 to 10 years.

The maximum amount you can borrow with a closed-end second mortgage depends on the equity you have on the house, but financing options can vary from 50% to over 100% of the available equity. Equity is calculated as the current market value of your home minus the first mortgage - both for a closed-end or open-end second mortgage loan.

When applying for a closed-end second mortgage, you will be asked to fill in application, provide the balance of your first lien, copies of title and hazard insurance, and copy of recent certified house appraisal, especially if the LTV is equal to or higher than 80%.

To determine tax-deductibility with a closed-end second mortgage, contact a tax advisor.

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