How Much Equity Do You Need to Get a Second Mortgage?
The way banks determine the lendable equity for a second mortgage is with a loan to value calculation. Discover why a bank may only offer 90 percent or less of the original loan amount on a second mortgage with help from a financial specialist in this free video on mortgage assistance and personal finance.
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Hi this is Matthew McKillen with Innovative Financial Group, the question posed to me today is how much equity do you need to have in order to get a second mortgage. Generally the way the banks determine the lendable equity for a second mortgage is they do what is called a loan to value calculation. And to make numbers easy if you home is worth one hundred thousand dollars, generally with a first and second mortgage they don't like to lend more than about ninety percent of the value. So if your first mortgage is let's say eighty thousand dollars, that's eighty percent of the value of the property. So they will allow you to go to ninety percent, which would leave about ten thousand dollars available for either a home equity line of credit or a second mortgage. It use to be you could borrow up to one hundred percent of the value of the property, but with today's market, with declining values, they have restricted the amount that is lendable down to about ninety percent. So depending on how much you are first mortgage balance is, just take ninety percent of the value of your home, subtract out your first mortgage, and then the balance of equity that is left over is the amount that the bank will allow you to have into whether you need a second mortgage or a home equity line of credit. The rates are generally a little bit higher on those loans, but again if it is used for home improvements or to consolidate bills it's really a great vehicle in order to improve your financial situation. Because you get one hundred percent tax deductibility on the interest that you are paying. Again my name is Matthew McKillen with Innovative Financial Group.