Second mortgages had their place, but it may be time to consolidate them to a fixed rate. (Unnamed Copywriting)

Second mortgages had their place, but it may be time to consolidate them to a fixed rate.

In the height of mortgage lending, second mortgages were incredibly easy to get approvals for. In most instances, second mortgage companies were doing everything they could to give them away. Typically, if you got approved for a first mortgage, the bank would throw in a second mortgage at closing at no cost.

These equity lines were a great tool for homeowners to take advantage of the equity they had in their homes. Second mortgage rates were typically adjustable rates, but for the most part, they were based on the prime rate, and were typically a quarter point to half a point than the actual rate was.

But, since that time, a lot has changed. The mortgage crisis has had a lot of dire consequences, and has taken a lot of victims. One of the first areas to be affected was the area of second mortgage lenders.

The mortgage crisis led to incredible rates of foreclosure, the likes of which had never been seen before. When a home is foreclosed and sold at auction, it will typically sell for 80 percent or less of what it is worth. When a homeowner owed on a first and a second mortgage, there was rarely enough money garnered from a Sherriff’s Sale to cover both mortgages.

Being that second mortgages are in second lien position, they cannot get any money from the proceeds of an auction until the first mortgage holder is paid in full. What this situation translated to was that the vast majority of all second home lenders have now gone out of business, and the only second mortgages available now have disproportionately high interest rates.

But, the lending crisis has also had a better effect on the mortgage world. Due to government intervention, the average interest rate for a first mortgage is now lower than it has ever been before. It is possible today to get an FHA loan on a thirty year fixed rate, depending on your credit score, as low as 4.5%.

So how does this affect your home equity line?

The FHA program not only has the best interest rates out there, but it also has the best approval guidelines in the business as well. Unlike Conventional financing, there is no penalty to the interest rate if a borrower is pulling cash out of their home. This cash can be used for many different purposes, but the best one is to pay off an adjustable rate second mortgage. A refinance second mortgage consolidation loan is the best way to manage the second mortgages that you may have as a remainder of the lending world two years ago.

Consolidating that second mortgage in with your first and getting lower interest rates on both will not only lower your monthly housing expense, but it will also ensure that the rate on that second mortgage will never increase again.