Second mortgage with no equity
Home equity or second mortgage loan is a way for thousand of people to save money using their home values. Benefit of second mortgage is that you are able to combine the payments of your current bils and any debt into one loan payment. In such cases if your credit rating is good to excellent then you can have the upper and will enjoy 125 percent of the value of current assets.
Consider following example:
Value of Property: $195000.00
Ist mortgage value: $180000.00
Iind mortgage value: $35000.00
Combined Loan To Value(CLTV):110.2 percent
Above is an example of no equity in which amount provided is 110.2 percent which is more then the value of your property. Hence is kno wn as no equity loan. In above example 10.2 percent of beneficial amount is enjoyed by the borrower. Some times it is kno wn as negative equity.
This money can be used in any way as you want, you can pay your bills, credit card loans, home reno vation, collage fee,luxury items purchase, holiday packages etc. till kno w you would have got on merit of no equity loan that is value more then given asset value, second benefit is interest rates. Interest rates of these loans is lower then that of credit card loans and personal loans. But they have higher interest rates then those equity loans. Third benefit of these loans is tax benefits, getting such loans can save you tax which in turn save you money. no credit loans are available for you is you have good credit. But if you don't have good credit then you can look for debt consolidation loans or traditional second mortgage loans and improve you credit ratings and then go for an no equity loan if needed. One more benefit is here if price of your property increases significantly then you can save more money in such loans.
But there is risk involved in no equity loans as well, liquidity of assets is to be considered if your property is no t liquid then it is better to look out for other options instead going for no equity loans. There are times when these no equity loans become headache. Following example will help you better understand it. Consider an situation in which you lose your job or due to some other reason you have to quit that job and forced to move to other state in search of job or due to some family reasons. In such conditions you have to sell your home but you cant sell it because of no equity loan. To sell it you need eno ugh money to return the remaining payments of lender. There are certain hidden cost attached with these sudden repayments you have to look out for those also. The bottom line is these loan have a huge negative effects.
One more situation in which no equity loan is harmful. If prices of property in your area are dipping significantly then that means margin is increasing, in other words no equity is increasing. Consider when you taken no equity loan the CLTV was 110.2 percent and due to dipping prices it is increasing.
Following will help you in better way
Value of Property when loan taken: $195000.00
Ist mortgage value: $180000.00
Iind mortgage value: $35000.00
Current Value of Property: $15000.00
Combined Loan To Value(CLTV):122.8 percent
That means you have to pay more money then that you have taken.
Problem can get worst when you are in a state of bad credit due to some financial pressure or drop in salary or any other financial crisis due to which you are unable to pay your monthly payments and in such conditions if you are looking to sell your home then it is going to cost you a lot, which would be impossible for you to do. Affect can be same as in two above examples so try an look out for other options to repay no equity loans.
Due to higher failure rate of no equity loans lenders are no w no t providing such loans to every one. But if you still want to take this benefits then you can have no equity loans under some very tight rules and guidelines. In past time lender use to give more emphasis on 125 no equity loans but as time passed more and more default cases raised due to which lenders are pulling their hands off. So I will suggest you to go for these loans when you are confident eno ugh about the repayments on time. If you are having a tree which is going to fruit in future then you can go for such no equity loans, that is you are going to have some mature funds in future to back you up from the few problems mentioned above.
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