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At
what stage of the home-buying process should
I visit my credit union?
What
is a first mortgage?
What
is a second mortgage?
What
does it mean to 'sell my mortgage on the
secondary market'?
At
what stage of the home-buying process should
I visit my credit union?
It is best to visit your credit union's
mortgage department before you even begin
to shop for that new home. A basic pre-qualifying
exercise will give you a feel for how much
home you can afford. Mortgage Pre-approval
will take this one step better, and will
not only provide you with affordability
information, but also will give you a leg-up
in the negotiation process. There is no
doubt that a buyer with a guaranteed funds
has more leverage in a negotiation than
one who is still waiting to hear back from
their lender.
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What
is a first mortgage?
A first mortgage is exactly what it says
it is - the first loan on a certain piece
of property. No other lien has been taken
out on this home. When you first buy a house,
the loan you typically receive is a first
mortgage.
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What
is a second mortgage?
A second mortgage is also what it says -
the second loan against a specific piece
of property. Consider this example: Let's
say you have a first mortgage on your home.
The value is $100,000 and you have a $60,000
balance left to pay on your loan. The $40,000
difference is considered equity, or the
part of the home that you own outright.
If you wish to further borrow against that
$40,000, you would be taking out a second
mortgage on the home in order to do so.
Why borrow against this equity? In many
cases, the interest rate you pay on your
mortgage is lower than many other types
of loans. Interest is also frequently tax
deductible for a first or second mortgage,
but not necessarily for a car loan or a
credit card. (Consult your tax advisor for
more information on tax deductibility and
home loans.)
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What
does it mean to 'sell my mortgage on the
secondary market'?
Fear not - This phrase is not nearly as
ominous as it sounds. Frequently, your credit
union can get you an extremely competitive
rate on the secondary market. This is simply
a network of large mortgage lenders that
work with the credit union to deliver low
rates to borrowers. If the member chooses,
they can finance their home loan with a
secondary market lender, and can do so through
the credit union. The credit union may technically
hold the loan for a very short period of
time before 'selling it' to this other lender.
The member often makes their loan payments
to and receives loan servicing from this
secondary market lender.
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