At the height of massive nationwide foreclosures during the 2008 financial crisis, homeowners were rambunctiously eclipsing their home equity with ill-fated second mortgages.
Second mortgages, also known as the “piggyback loans,” are the financial “kiss of death” within the mortgage industry, perilously turning home equity upside down and placing homeowners mortgages underwater.
Second mortgages are risky mortgage loans formulated as interest only mortgages or adjustable rate mortgages (ARMS) with 30-year amortorization schedules as the primary financial vehicles.
The interest only mortgages are formulated with exceedingly high interest rates ranging between 8% and 12%, and the borrower never liquidates the principle before completing the 15-year or 30-year amortorization schedule.
Moreover, interest only mortgages are conducive for real estate investors strategically designed to create financial liquidity to purchase more real estate properties that increases more financial liquid assets.
The adjustable rate mortgages (ARMS) are fluctuating mortgage loans formulated with exceedingly high interest rates ranging between 8% and 12%, and compounded with interest rates and principle mortgage payments.
Regretfully, homeowners’ mortgage payments are subject to increase or decrease monthly.
Home equity is sacred within the real estate industry. It is incumbent upon homeowners to protect and reserve their home equity, primarily for net worth stability and financial liquidity.
The most appropriate financial option for homeowners is to secure a home equity loan from their respective banking institution.
Homeowners should essentially utilize home equity loans for home renovation projects, subsequently the home upgrades would elevate home market value and increase home equity.
However, homeowners should only borrow the necessary funds, without totally diminishing home equity, whereby home equity becomes collateral for home equity loans.
Home equity loans, commonly called term loans, have soft liens upon the respective properties.
Home equity loans are short term mortgage loans ranging between $10,000 and $25,000 with fixed interest rates, and should be immediately liquidated between 5 years and 10 years. Homeowners should separately send an extra $50 or $100 monthly that would rapidly amortorize their respective home equity loans.
Homeowners should never take out home equity loans with a 30-year fixed interest rate or adjustable rate mortgages (ARMS).
Consequently, homeowners will pay approximately three times their initial loan amount, before totally liquidating the 360 monthly payment amortorization schedule.
Hence, this financial strategy is financial suicide.
Homeowners must always avoid second mortgages because a house is not a home without a homeowner.