Types of Mortgage Loans

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When you want to purchase a new home, a "First Mortgage" is created. This mortgage can cover up to the full price of the home, sometimes more for HomePath renovation loan.  However typically you will have to have money to put down. Some buyers can purchase a new home with low down payments on FHA and VA loans.

Second Mortgage
A "Second Mortgage" can be taken out on your existing home against the "equity" you currently have. Some lenders will allow you to use 100% of your homes current value to determine equity, but 90% is common, and 80% is required for the best rates (closest to first mortgage rates). Thus, on a 200,000 home, if you owe 100,000 on your First Mortgage, you could borrow up to $100,000. Rates are usually a bit higher than first mortgages. Since this is a second mortgage, it is a bit more risky than a first mortgage for the lender, thus the interest rate is higher. If something were to happen, the first mortgage lender would be paid first.

A second mortgage can be a fixed rate and fixed term, or a variable rate and balance. The second mortgage with a variable rate (usually based on prime rate plus a risk factor) is usually referred to as a Home Equity Line of Credit or HELOC. With this type of second mortgage the balance can also vary - you are issued a checkbook with which to write checks up to the limit of the Home Equity Line Mortgage.

People usually Refinance their current mortgage(s) to get a lower interest rate or borrow more money. You can refinance the existing loan amount in most cases, or take cash out up to 85% of your homes value.
"Refinancing" is the process of paying off one loan with the proceeds from a new loan using the same property as security.

Home Improvement
Any of the above three types of loans could be used here, but you are simply stating that you will be using the funds to improve the home.

Debt Consolidation
Because Mortgage Rates are usually 2 to 3 times lower than Interest Rates of Small Bank Loans, Credit Cards, etc., many people choose to pay off all their bills with funds from a mortgage. This can be a very wise move as it not only relieve you of the multitude of monthly bills, but the accruing high interest rates on many small loans is very expensive in the long run.