American homeowners have a record amount of equity in their home. Many of these homeowners would like to cash out part of that equity but don’t want to trade an historically low interest rate for one that is as high as it’s been in 20 years.

Instead of refinancing their home, an option is to get a fixed-rate second-lien. This is different than a HELOC, home equity line of credit, which gives you continual access to your equity at a variable rate. A HELOC has a draw period where you only must pay the interest.

A second mortgage is a loan against the equity where the homeowner will receive a lump sum and will make payments to repay the loan and interest over a specified period. Generally speaking, lenders want the combination of the existing first-lien and the new second-lien not to exceed 75-80% of the home’s current value.

To calculate how much would be available in a second-lien, subtract the existing unpaid balance on the first-lien from 75-80% of the home’s current value. The remaining amount would be available in the form of a second-lien mortgage.

The borrower, which is the homeowner, would have to qualify for the new second mortgage with sufficient income, acceptable debt-to-income ratios, good credit, and other underwriting requirements.

The advantage of this option is that the homeowner retains the lower interest rate first mortgage which may represent a larger percentage of the value of the property. The second mortgage will have a higher interest rate but will only be on a smaller percentage of the value of the property. The blended rate of the two mortgages will be less than the cost of refinancing the home at current interest rates.

Your lender can run an analysis to determine the blended rate on your first and second mortgages so you can see the benefit of keeping your low rate first mortgage in place and accessing your equity through a fixed-rate second mortgage. Sources for home equity loans could be traditional banks, community banks, credit unions, mortgage brokers, and mortgage companies.

A fixed-rate second mortgage is a solution for homeowners who would like to cash out part of their equity but feel trapped because they don’t want to trade an historically low interest rate for a much higher one.

Buying or selling a house is an exciting and sometimes confusing experience that includes expenses called "closing costs" that can often catch us by surprise. Closing costs are simply the fees and expenses incurred by buyers and sellers during a real estate transaction’s closing or settlement process.

Typical closing costs can vary depending on what is customary in an area, the mortgage type, property value, and other factors. The largest expenses can be the real estate commission and the title policy. Total closing costs for a buyer can characteristically range from 2% – 5% of the sales price and 4% – 7% for a seller.

The most common buyer’s closing costs include loan origination fee, title insurance, attorney fees, appraisal, homeowner’s insurance, underwriting, miscellaneous fees associated with a new mortgage, and prepaid interest to the end of the month.

Interest is paid in arrears on mortgages after the borrower has used the money. The payment due on the first of the month pays the interest for the previous month and is calculated for a full month. The prepaid interest covers the time from the closing date to the end of that month. The borrower’s first payment will usually not be the first of the month following the closing date but the next one.

Separate from the closing costs, lenders usually itemize the additional fees collected at closing used to pre-pay portions of the property taxes and insurance to establish the escrow account. Insurance is always purchased annually in advance which would be due at closing.

The seller will owe the taxes from January 1st to the closing date, and it will generally show as a credit to the buyer if they haven’t been paid to the taxing authority for the year yet. Lenders generally like to have two months of funds for the annual insurance and taxes so they can be paid or renewed before it is due.

Some expenses are paid outside of closing like the inspection fees that would be due to the provider at the time they are made.

While both buyers and sellers are responsible for paying certain closing costs, it is possible for a buyer to negotiate for a seller to pay part or all their closing costs. VA loans restrict the buyer from paying certain fees and they become the responsibility of the seller. Such fees include attorney fees, agent fees, escrow fees to establish the account, rate lock fees, appraisal fees or inspections ordered by the lender.

The actual expenses will be determined by the lender and special provisions in the sales contract. Your agent can supply you with an estimate of closing costs you typically will be responsible for at the beginning of the transaction and again at the time the sales contract is written. Buyers will receive an estimate from their lender at the time of application.