Mortgage Reviews

A second mortgage is the process of getting another loan in addition to
your original mortgage. Before entering into the second mortgage,
homeowners should carefully understand the merits and demerits of taking
a second mortgage and should also carefully analyze the different
available options.

Types of second mortgages:

There are two main types of secondary mortgage available: home equity
loans and home equity lines of credit. With home equity loans, the
lender will give you the lump sum of amount all at once and you repay it
at regular intervals over a particular time period. With home equity
loans, the interest rates are fixed.

Home equity lines of credit
are like a credit card, you can spend the money as you need it. In this
type of loan the interest rates are adjustable.

There are few
restrictions available on the second mortgage. Most people are using
this type of loan for the purpose of home repair and maintenance or for
other big expenditures. It is not a good idea to buy this loan for
something insignificant such as for new clothes or for a vacation,
because you are risking your home in the process.

Merits:

Second mortgage is having huge advantage, because it may give you a
large sum of amount that you can spend it when in need. Also, interest
rates are low and the interest paid on this mortgage is tax deductible.

Demerits:

The major drawback of a second mortgage is that the loan is secured by
your home. So, you may lose your home if you don’t do the proper
repayment. Also, you may have to pay the minimal fees (3 to 5% of your
total loan amount) to obtain it.

How much money a borrower can get?

The amount of money you can get will vary on a number of things such as
your credit score and the loan to value ratio (LVR). Most lenders won’t
provide you more than 70 to 80 % of the LVR of your first and second
mortgages combined.

Where to get a second mortgage?

You
are not having the chance to get your second mortgage with the lender
who gave you the original mortgage. You can find a second mortgage with
any other lender. Since the lender in the second position takes on more
risk, not every lender offers this type of mortgage; it will vary from
individual lender’s risk tolerance.

When used properly and with correct planning a reverse mortgage can be a
useful tool for both the middle class and even wealthy borrowers. The
key lies in analyzing the borrower’s current needs and making the best
decision for them.

Typical Situation for Middle Class

Many people in the middle class work in a career for 30+ years and
retire in their mid to late 60’s with a home that is either paid off or
close to being paid off within a handful of years. Thankfully, paying
off the mortgage will free a sizable portion of their income.
Unfortunately, most people retire with a noticeable decrease in their
monthly income.

A reverse mortgage can help this situation in a
number of ways. The easiest solution is to borrow 65% to 70% of the
home’s value and receive monthly payments. The payments will usually be
enough to offset most of the loss in income. A second method is to get a
lump sum distribution and use the money to invest in safe resources
like bonds and low risk mutual funds that will yield enough interest to
supplement the borrower’s income. Other possible resources that can be
purchased would be rental property or a silent partnership in a stable
company.

Typical Situation for Moderately Wealthy

People that have been accustomed to a 6 figure job will find it
mentally and emotionally difficult to drop down to a slightly less
expensive lifestyle when they retire. Fortunately, these individuals
usually have homes that are in the higher price range of $400,000 and
up. With homes at these price levels it is possible to get a higher
reverse mortgage amount. The current maximum reverse mortgage amount is
$625,500 but that may likely change at the beginning of the new year
back to $417,000.

Even at the lower amount it is still possible for borrowers to get a
sizable loan and use it for investing purposes. Like the previous
example, the borrowers can use the money to invest in multiple ways. The
difference is that the bigger amounts would allow for a wider range of
diversity.

For instance, if a couple aged 65+ chose to get a $400,000 loan they could use the money in the following way:

Purchase a modest home for $125,000 and rent it out for $875 to $1125
per month, depending on the areaInvest $100,000 in bonds and mutual
funds that are yielding between 4% and 5% annually, resulting in $3,300
income per monthBuy a vacation home in the mountains or the beach that
averages $400 per month in rental incomePut $50,000 away in savings for
possible medical bills

Grand total of monthly income from investments: $4,575

As you can see, a reverse mortgage can literally change a person’s
financial status in a short amount of time and put them in a much better
position to live a comfortable life while also building up a sizable
nest egg to leave to their children.

How satisfied are you with the state of UK banks? Have you found that
you have been unable to borrow the level of mortgage that you need
because mainstream lenders simply have a tick box mentality with regard
to affordability criteria? Are you struggling to find a good home loan
deal at a favorable rate of interest? Are the stringent lending criteria
of the high street banks and building societies preventing you from
moving house?

If you have experienced any of these problems then you are not alone.
Research has revealed that the majority of high net worth customers
believe that the UK banking industry could provide a better service to
borrowers. High Net Worth individuals (HNWs) are those who earn over
300,000 per year or hold over 3 million pounds of assets.

So, if
you’re looking for better banking or lending, a private bank mortgage
or bank account may be the answer. Private bank mortgages offer a great
alternative to ‘tick-box’ focused lenders.

The research from
Duncan Lawrie Private Bank questioned 1,000 clients, all of whom hold
assets of over 250,000. The survey found that seven out of ten of these
high net worth finance clients believe the UK banking industry could do
better.

Around three quarters of respondents (76 per cent) to
this particular survey would prefer a more personalized service from
their banks. And, nearly one in ten said they have had their bank
accounts hacked. Of those people who were hacked, 18 per cent stated
that their bank did not recognize the change in spending habits that
should have flagged up a problem.

And it is not just the very
wealthy who have formed this opinion of banks. Mortgage Solutions has
reported that the banking sector has come under criticism in recent
years for its bonus culture, putting short-term profitability ahead of
customers and, more recently, the Libor-fixing scandal, which continues
to appear in the news long after it was first exposed.

As far as consumers are concerned the retail banking industry has
changed significantly in the last 30 to 40 years. Whilst bank customers
value the advantages of internet banking and mobile banking to help them
manage their accounts and finances more easily, they also wish for a
return to the traditional values that the banks once had as trusted
advisers who put the customers’ interests first. And this is why private
banks have increased in popularity.

As well as offering a
better banking service, private bank mortgages have also become more
popular, particularly among high value mortgage clients, in recent
years.Over the last few years, private banks have plugged a gap that has
been created by the reluctance of mainstream banks and building
societies to lend high value mortgages to high net worth clients.

Many London mortgage brokers have, during this period, built up strong
relationships with dozens of private banks in the UK and overseas. These
banks have an appetite to lend and are eager to offer their bespoke
services to high net worth mortgage clients.

High value mortgage
borrowers often have complicated income and property ownership
structures which fail to meet the ‘tick-box’ lending and affordability
criteria of mainstream banks.Private banks are much more likely to take
these factors into account and make a lending decision based on common
sense. They can offer flexible, tailored large mortgages and a level of
service which is demanded by high net worth clients.”