No Equity Second Mortgage Home Loan

Another name for a second mortgage home loan is an equity mortgage loan. This is because customarily a second home loan is secured by the equity in a property – equity being the difference between what you own on a piece of property and what that piece of property is worth on the open market.

Lenders are glad to make equity-backed second mortgages because their loan is 100 percent secure, and the borrower has a great deal of security knowing that if anything were to happen and he or she were forced to walk away from the property, there is sufficient equity to cover his or her loan.

But now some lenders are making no-equity-required second mortgage home loans. As the name implies, a no-equity-required second mortgage home loan is a loan that is not secured by the equity in a piece of property. In fact, these loans are not secured by anything.

While a no-equity second mortgage may seem desirable at first, there are some pitfalls that the borrower should be aware of. For one thing, if there should ever be a problem and the lender is forced to foreclose on the property, there is a possibility that the borrower could find himself or herself liable for any shortfall between the sales price of the home and the amount of the loan.

One thing a no-equity home loan may be used for with some degree of safety is financing a home improvement that will create the equity needed to cover the loan.

There can also be tax concerns. As always you need to consult a tax expert to look at your individual situation, but in many cases the interest paid on a loan that exceeds the value of a piece of property is not tax deductible.

While there are times when a no-equity second mortgage may look appealing, care must be exercised in making certain that the borrower is not liable for more than he or she can afford to repay.