Question:

What is a no equity second mortgage?

Answer:

No equity second mortgage loans allow you to borrow usually up to 125% of the value of your home. No equity second mortgage loans can be particularly dangerous if your home value declines and you need to move out. Selling the house will not help and you will have to come up with cash to cover the difference between the sale price and what is owed to the lender.

Consider an example of a 125% no equity second mortgage:

You have a house worth $200,000 and a balance of $150,000. With a no equity second mortgage you could borrow another $100,000 and your combined mortgage debt will be $250,000. A year later, you owe $235,000 but your house value has declined to $175,000 and you want to move out to another state. You need to sell the house but you can't sell it at the price you need to get rid of mortgage debt.

How are no equity second mortgage loans used?

The 125% no equity second mortgage programs are widely used to reduce mortgage bills and consolidate debt. Some people take no equity second mortgages for investment purposes, the current trend for using home equity shows. Mutual funds are a common investment reason for taking a no equity second mortgage.

125% no equity second mortgage programs usually require credit score 650 and above, and full documentation.

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