What are Second Mortgage and Things to Watch Out For?

Related imageA mortgage is a loan that is placed on the acquisition of a real property. These mortgage loans are often big in value which can become a problem when it is not managed properly. In cases where a business or individual needs cash, a second mortgage may be placed to support the need. A second mortgage is actually a mortgage of a property for a loan where the property is still under the initial mortgage. It is also known as a subordinate mortgage.

In the event that the borrower or lender is no longer able to pay off all the loans, the primary mortgage lender will be the first to receive all the proceeds from property after it has been sold. The second mortgage will only receive proceeds from the liquidation of the property once the primary mortgage has been paid in full. For this reason, the interest rates charged by the second mortgage is always higher than the primary mortgage.

Second mortgages are used for other purposes such as large expenses that are difficult to finance. Not often, a business or individual has enough cash to support large expenditures. An option is getting a second mortgage.

A second mortgage may also be used to support refinancing or consolidation of debt. But it is very important to review and check the interest rates that a second mortgage carries to make sure that this will prove to be more advantageous to the borrower.

Image result for second mortgagesGetting a second mortgage will lead to additional payment to existing loans if taken for purposes other than refinancing or consolidating debts. Review your existing expenses and plan your action before taking on a second mortgage. Make sure that the additional payments from the second mortgage is something that you will be able to handle. Also, review all the risks involved in getting into an agreement with a new loan. Evaluate and check all the options you can take before getting into a second mortgage. Will a personal loan be better having a different asset placed as a collateral? Is refinancing an option that can help you have less interest? These options may prove to be more beneficial than a second mortgage.

What Are Payday Loans?

Payday Loans are short term yet fast cash loans that help you get by through a salary shortage. These payday loans are usually due on the next payday period.

Most financing institution granting a payday loan has a very low minimum loan amount but has one of the highest interest rates. Payday loans are more likely to be provided by small financing institutions and are usually not available through a bank. They are also known as salary loan, payroll loan, cash advance loan or payday advance) This type of loan is typically unsecured where the main criteria for granting the loan is the borrower’s employment or having a regular source of monthly income.

Image result for payday loansPayday Loans often carry a substantial amount of risk on the lender as it does not have any collateral and therefore unsecured. Most lenders would require the borrower to write a check and the lender will encash the check on the day that payment has been agreed on by both parties. In some cases (especially in third world countries) where the borrower does not have a checking account, the lender would require the borrower to leave their ATM Card and redeem it on the day the loan is due upon payment by the lender.

These establishments who provide this types of loan have been branded with a bad reputation because of the high interest rates that are being applied on the loans. Most often, the borrowers are the kind of people who are already trying to make ends meet hence the negative reputation given to these types of lenders. This type of lending has become very controversial because of the reason that most lenders do not go through an extensive credit review of the borrower before granting the loan.

Image result for payday loans

And with the reason that most borrowers for this type of loan are those who are most vulnerable, most lenders (but not all) encourage these clients to borrow more. Because of this, most countries have established rules to be followed for this type of lending. Although some third world countries have a long way to go in protecting it’s consumers from the high interest rates, this type of lending will continue to be a popular one.

What Are Reverse Mortgages?

Reverse mortgages are instances where you mortgage your home in exchange for loan payments that are usually made in staggered amounts. You are given the right to continue living in your home as long as you pay the taxes continue maintaining the property. When you die, decide to sell the house, or move out, your spouse or your estate will need to pay for the loan. Reverse mortgage loans are often used to be a source of income as the payments can be given on a staggered basis. Reverse loans have three types. Reviewing them will help you decide which type of reverse loan will fit you well.

  1. Image result for reverse mortgages single purposeSingle Purpose – this type of reverse loan show a specific purpose for the amount of money being received as a loan. The loan amount that is received may be used for repairs, maintenance, improvements or even realty taxes paid. This is often taken by individuals who have low to moderate income. They supplement the reverse mortgage to pay for additional expenses of maintaining a home.
  2. Image result for reverse mortgages ProprietaryProprietary – as the name suggests, these loans are being supported by proprietary institutions that developed the property. Proprietary reverse mortgages are not insured by the government and become limited to the amount of risk that a lender is willing to take. The amount of loan will be estimated from the amount of the property’s appraised value which can be a big amount of money. Unlike the single purpose reverse mortgage, the proceeds can be used for anything the home owner. This includes in paying off the existing mortgage that the property is in. This type of reverse mortgage is not as common as the third type of reverse mortgage discussed below.
  3. Home Equity Conversion Mortgage (HECM)Related image

This is the most common reverse mortgage that is being offered. Similar to the proprietary reverse mortgage, the proceeds can be used for anything that the mortgagee wants. Home Equity Conversion Mortgage (HECM) as the name implies allow the homeowner to convert the equity value of the property into cash. The amount is based on the appraised value of the property and the age of a borrower which is often granted to senior members of the society.

Reverse mortgages are ways that can be used to create cash and secure the property without having to leave and allow the borrower to use the home until they die or until the home is sold.

What Are the Different Types of Debt?

Debt has been there since the early times of trading.

It has been proven to be one of the most effective ways in doing business until presently, where debt has been the focus of business by financial institutions. A borrower is granted a sum of money or a line of credit by a financial institution (otherwise known as the lender) which the borrower can use to purchase goods or pay for services that is needed.

Debt is used to delay a borrower’s use of personal money for the purchase or payment of goods and services. This is supported by an agreement with the financial institution to repay the amount with an additional fee also known as an interest rate. A debt may also have other fees that may be paid depending on the terms of the agreement.

Two types of deb that can be classified as following:

  • Image result for Credit (or Open-Ended Debt)Credit (or Open-Ended Debt) – Credit is the ability of a customer or credit holder to purchase goods and services that will be paid at a future date. There are different types of credit but the main system of how it works is that the goods and services are being paid by the customer based on a promise to pay later. The material sample of credit are bdo credit cards whereby you can pay for goods you wish to avail using this card. A credit most often comes with a credit line which a customer is granted with. The customer cannot spend beyond this credit line unless the financial institution who has granted the credit allows the customer to exceed what has been granted. Credit also grants the customer the to pay on a revolving amount basis where there is no fixed price required on due dates.
  • Loans (or Closed-Ended Debt)Related imageA personal loan singapore or closed ended debt has the same intention as how the credit works. It is made by a customer or borrower to purchase goods and services. The difference with the first type of debt is that an actual cash amount is granted to the borrower for use of purchases and/or payment of goods and services. These loans are then paid with fixed amount with a specific term end date. Car loans or business loans can be more advantageous in the sense that it allows the borrower the flexibility to use cash compared to finding a goods or services provider who can actually take credit as a form of payment.

What Are Personal Loans?

A Personal Loan can is often a type of low income loan that is an unsecured debt which is also known as a consumer loan by a licensed money lender or a legit lending company.

It is a form of loan where the obligation of the borrower is often not supported by a guarantor or any collateral on any of the borrower’s assets except if the loan is being used to purchase an asset.

Image result for personal loanA personal loan can be a broader term for other types of loan such which are unsecured in nature. Similar to a Payday Loan where the loan is unsecured, a personal loan on the other hand has a longer term that can take years to pay. It also has a high interest rates which is caused by a high risk placed on the lender due to its nature of often being an unsecured debt.

Unlike a salary loan, a personal loan is usually acquired by a borrower to generate a higher amount, longer term with a lesser interest rate. A borrower can use this for a purchase, renovation or even pay off other debts and consolidate all of a borrower’s debt under a single one. These types of loan are granted based on the borrower’s credit history and credit worthiness.

It helps the lender identify the borrower’s ability to pay the loan from a source of income. The integrity of the borrower is very important upon granting this type of loan. These loan payments are paid by installments throughout an agreed term which have been accepted by both the borrower and the lender. The installments are paid with a fixed amount that is spread across the duration of the term.

Image result for personal loanA personal loan philippines is a much safer type of loan compared to a credit card loan. A bpi credit card loan may grow significantly due to the rollover of finance charges which are then formed part of the applied interest rates computation. As mentioned above, a personal loan is has a fixed amount of payment where the interest rates have already been incorporated.

Reason for getting a personal loan allows the borrower to use the money for whatever reason they may need the money for.