A second mortgage can be the first step to climbing out of debt, especially for homeowners who have bad credit. A second mortgage is a loan taken out in "second position" on a property that already has a mortgage. There are fixed-rate loans, adjustable-rate loans and home equity lines of credit (also known as HELOCs). Fixed-dollar-amount mortgages are the way to go when you need all the money at once. A HELOC is a credit line that can be drawn upon as needed up to the limit of the loan.
"Bad Credit" Second Mortgages
Your right to credit is guaranteed by the Equal Credit Opportunity Act. You can't be denied credit based on race, gender, marital status or ethnicity. But how much money you can borrow and how much interest you will be charged will depend on your credit score.
Credit is easy to get and hard to control. Not using it properly will get you a low FICO score from the three major credit bureaus. Generally, a score of 680 or better signifies good credit. Scores in the 680-620 range are still considered good, but will cause creditors to take a second look before lending you money. 620 and lower, and you are in the bad credit range.
Here are some indications that you are in bad credit territory:
* You have to apply for new credit cards to pay off old ones, thus rotating but not retiring your debt.
* You can only make the minimum payments on your loans and cards each month.
* You are at the limit on all your cards and accounts.
* You have to get subprime financing when you need to borrow money.
Improving Your Financial Situation
It's a catch 22 that getting a bad credit second mortgage can lower your FICO score initially, but it can also help raise it in the long run-if you use the money to pay off high interest debts. This new loan doesn't reduce your debt; it just restructures it to help you get back on your feet financially. An added bonus is that the interest you pay is tax deductible. The IRS says joint filers can deduct all the interest to a maximum of $100,000 on home mortgages.
It's easy to shop and compare bad credit second mortgages online at reputable sites like www.badcreditsecondmortgages.com. The no-obligation application process is quick and confidential. Interest rates are still relatively low, but might rise in 2006, so now is a great time to see if a second mortgage is a good financial move for you.
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