1st 2nd mortgage

Image : http://www.flickr.com

California homeowners seem to be getting nervous. Just a few years ago, people believed that if you bought a home in California, that you could not go wrong because the equity always increased. The question posed today keeps coming up; Can the California housing market rebound if the interest rates for mortgage refinance and home equity loans continue to drop?

How will the California Housing Market Rebound if the Interest Rates Continue to Drop?

WHEN Alan Greenspan warned that the stock market was displaying signs of “irrational exuberance,” share prices collapsed – four years later. In September 2005, the now-retired Federal Reserve chairman said he can glimpse similar frothiness in housing prices.

“The market is as vulnerable today as the last time we had this stretched affordability in 1989,” says David Rosenberg, a Merrill Lynch economist. “It might not be on the same par as the equity bubble in the late 90’s, but it’s not far off.” Signs of this are appearing everywhere–San Diego home sales, Orange County home sales, Bay area home sales, Central California home sales and Northern California home sales are all slow. California home buying in general is sluggish.

1st and 2nd mortgage rates continue to decline.

30-year fixed rate mortgages and 15-year fixed rate mortgages have been largely on the decline for the last several weeks after reaching a 6.93 percent peak in June. Home equity rates and adjustable rate mortgages (ARMs) have also been on the decline recently. Financial markets are convinced that a slowing economy will help keep Inflation contained and allow the Federal Reserve to keep Interest rates low for the time being. According to loan officer Lynda Nelms,”second mortgage and home equity loan rates may continue to drop.”

Will the declining rates spark a California housing market rebound? At this point, at least the refinance and second mortgage markets are picking up. Because of the falling rates, refinance application volumes are on the rise again and second mortgage application volumes continue to increase. “With long-term interest rates having fallen far and fast in recent weeks, a new refinance boom is well underway,” says Bob Walters, chief economist for Quicken Loans. “We’ve seen an increase in homeowners refinancing out of adjustable-rate mortgages on the verge of them resetting and out of fixed-rate mortgages that are in the mid- to high-6% range.”

Historically, lowered interest rates and housing price drops have helped spark housing market rebounds. Remember the last California housing slump from that started in 1989? The market did rebound in 1996 with a full recovery by 1997. It has since spiraled upward. Like before, lowered prices and lowered interest rates should start the California housing market rebound. It’s just a matter of time.

Image : http://www.flickr.com

Normally, a person home is their largest asset they have. In addition, it is something you can live in comfortably and make improvements when the time comes. Recently, there has been a noticeable spike from homeowners taking money out of their home to make improvements, buy consumer goods such as cars, or take needed vacations. One of the best ways to accomplish that is a second mortgage or home equity line of credit.

Logically, if you are getting a second mortgage, then you already have a first mortgage in place. How much you can extract is based on the equity you have which has been slow in the past two years depending on your location. Typically, qualifying guidelines for a second mortgage is less stringent than a first mortgage until 2007. Nowadays, you must provide full documentation unless you have 40% equity whereby you can get a no doc mortgage in second position from private institutional sources.

Depending on your credit situation, the costs for a second mortgage will be much lower than a first mortgage due to the loan amount and a number of other factors. On the other hand, interest rates on seconds are usually higher than a first mortgage.

A second mortgage is defined as a fixed amount of money secured against the home equity in your home which the borrower will repay after 10, 15 or 30 years. The lender will place a lien on the property for this debt obligation.

The proceeds from can be used for almost whatever legal purpose the borrower desires. Most borrowers choose a 2nd mortgage to consolidate higher interest debt (e.g. credit cards, car loans, expand their business), make home improvements, or use it for their child’s college education. Whatever one decides to do with their new 2nd loan, it is important to remember that if one defaults and does not make their payments then they can lose their home to foreclosure.

The amount borrowed on the second mortgage will be combined with the amount the borrower still owes on his first mortgage. For example, if your first loan is $200,000 and you want a second loan of $40,000 for debt consolidation purposes and your property is worth $266,000 then your new second mortgage will leave you 10% equity which most lenders are comfortable with. One should always consider and keep in mind that you should not apply for a second mortgage unless you know you are comfortable with making the new payments. In essence, your income should be stable and/or rising. Otherwise, it will essentially be only a matter of time until you lose the home.

Be diligent and shop around to find out the current home equity rates based on the equity in your home and credit score. See what you can do to raise your credit score to get a better rate on the second mortgage. You may find that getting a new first mortgage generally better than in the current first mortgage and a new second mortgage. Your goal should be to get the best price and the current situation or to wait a little "to improve it.