Second Mortgages allow you to borrow up to 125% the value of your current home. Second mortgages are a great choice in the current economy for two reasons:
More cash on hand allows for more flexibility for situations that arise.
Interest rates are at a historical 30 year low.
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There are many indexes that can influence your interest rates:
- Prime Rate is published by the Wall Street Journal and is used for corporations,
large business and other parties with extremely good credit. This rate is
one of the most stable and, for the most part, does not vary from bank to
bank. Since it is often used to predict the rise or fall of rates, when the
prime rate changes it is likely that consumer loans will follow its lead and
so this is a good index to study.
- U.S. Treasury Security Yield is the average of monthly rates of a one, three
or five year U.S. Treasury security. Many adjustable rate mortgages are set
by the average rate of this index. If you are interested in finding more information
on this index, an average of the monthly rates is published annually by the
Federal Reserve Board.
- Federal Funds Rate is most often referred to as the Fed Fund Rate. This
index is set by the Federal Open Market Committee and is used by banks to
set the rate on funds that are loaned from one bank to another overnight.
This index is used to stimulate economic growth. Changes in the Federal Funds
rate effect inflation and economic stability. The Federal Open Market Committee
has to seriously consider the consequences of any changes in this rate. If
it was set too high, it could have the potential to choke economic growth.
Long-term interest rates are greatly effected by this index.
- The 11th District Cost of Funds can be used for adjustable rate mortgages.
Generally parallel to the one-year U.S. Treasury Yields, this index is reported
An adjustable rate fluctuates with indexes such as the prime rate, federal funds rate, the U.S. Treasury security rate, or the 11th District Cost of funds. On a mortgage, your rate will usually adjust every one, three, or five years. This means if the rates go up, you will pay more than the person who started with a fixed rate, and if the rates go down you will pay less than that person. Low introductory rates and an interest rate cap to keep monthly payment from rising too high give this loan some security for the borrower. This type of loan is often the loan of choice for those with damaged credit or who are only planning to live in a new home for five to seven years.
Interest rates are the amount you pay in return for the balance that a bank loans you. This percentage of your balance can either be fixed or can be adjustable. When you have a fixed rate loan, this percentage stays constant, allowing you to know from the start of the loan exactly how much interest you will pay throughout the loan. This fixed rate allows you to have the same monthly payment throughout the loan.