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Unformatted text preview: following closing, the lender is likely to want a prepaid interest payment for the period from July 16 through July 31. Then the first mortgage payment on September 1 will include exactly one month's interest, and the payment will be a part of the “level payment plan”–the same monthly payment for the life of the loan, or until the interest rate is adjusted in the case of an ARM. Warehousing Fee – Some lenders charge a warehousing fee for holding the loan until it can be sold in the secondary money market. Tax Service – Some lenders charge a tax service fee to subscribe to services that keep lenders informed about delinquent property taxes. THE HOME EQUITY LOAN OR LINE OF CREDIT
THE SECOND MORTGAGE
The second mortgage loan has been the source of financing of many kinds of projects for generations. Many homeowners in the past have obtained second mortgage loans on their homes to obtain funds for business ventures or investments. When those investments were successful, the second mortgage turned out to be a good idea. When those ventures were unsuccessful, the second mortgage often caused the loss of the home. Clearly, the second mortgage on the home puts the home at risk. Nevertheless it has always been a ripe source of financing for many purposes. Home Improvements – The second mortgage loan has been the most common source of financing for home improvement projects. Congress recognized this
15-6 Licensing School for Appraisal, CPA, Contractors, Insurance, Real Estate, Notary, Nurse, Food Handlers, Tax and Securities 15: REFINANCING OR NOT AND CHOOSING A LENDER
importance in the creation of the FHA mortgage insurance plan in 1934. FHA Title I loans were authorized with FHA insurance for home improvement loans. LINE OF CREDIT
The home equity line of credit is a recent variant on the second mortgage, created largely as a result of changes in the tax laws. TAX LAW CHANGES
The Tax Reform Act of 1986 – Congress changed the rules about the deductibility of interest, beginning with the 1987 tax year. The deductibility of home mortgage interest was retained, although some li...
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- Spring '10