Life is full of twists and turns, and financial freedom and flexibility enable you to zig and zag along with it. You can never anticipate when you will need a large sum of money, and when you need it but don’t have access to it, it can feel like the sky is falling. A closed-end second mortgage is an excellent solution. Many people ask, What is a closed-end second mortgage?
We’re here to help. At mbanc, our passion is supporting people with premier lending solutions. We have helped people achieve financial freedom and leverage their equity for greater success for years. Learn what a closed-end second mortgage is in our blog.
What is a Closed-End Second Mortgage?
A closed-end second mortgage, also called a CES loan, is a second mortgage that enables homeowners to use their home equity without impacting the rate on their first mortgage.
Compared to an “open-end” mortgage, which is similar to a home equity line of credit (HELOC) and means you can take cash out up to a limit and continue drawing as you pay the loan, a “close-end” second mortgage provides the entire loan amount in one lump sum.
After receiving the loan, however, you will not be able to withdraw any more cash.
“As a homeowner, you have worked hard to build the equity in your home, and that should be a two-way street. You deserve to be able to make that equity work for you, too. A closed-end second mortgage helps homeowners do just that while freeing up significant cash for them to use.” – Mayer Dallal, MBANC Managing Director
How Does a Closed-End Second Mortgage Work?
Now, understanding how this loan works is also essential to answering the age-old question: What is a closed-end second mortgage?
Sometimes called a closed-end home equity loan, a closed-end second mortgage generally enables homeowners to receive up to 80% of their home equity in a single lump sum payment. Still, several factors impact this process, such as your credit score and income.
As a result, you will be locked into a loan term, like 15 or 30 years, and required to make monthly payments for the duration of the mortgage loan.
“Generally speaking, a closed-end second mortgage is ideal for people who will live in their home for a long period, but it can also be a great way for people who need to free up money for major repairs, debt consolidation, or other crucial costs that may require immediate financing.” – Mayer
What Are the Benefits of a Closed-End Second Mortgage?
It is important to understand that there are several benefits if you are wondering, What is a closed-end second mortgage? Generally, this type of mortgage has two main benefits. First, it gives you fast access to sizable sums of cash because of the lump-sum cash payment.
Once you receive this money, it is similar to a personal loan in that you are free to use it however you want. Maybe you want to pay off debt, finance education, make major renovations, pay medical expenses, take a dream vacation, or pay for your wedding.
The other benefit is the option to obtain a fixed interest rate, which can make it a superior alternative to taking out a HELOC because, with this type of financing, you will likely receive a variable interest rate.
“Capitalizing on fixed interest rates can be a great opportunity for homeowners if you lock in your interest rate when the rates are low. In 2023, with economic uncertainty, a looming recession, and increasing unemployment, interest continues to fall, meaning these conditions can work in your favor.” – Mayer
Apply for a Closed-End Second Mortgage Today
So, what is a closed-end second mortgage? This type of loan enables you to leverage the equity you have worked hard to build in your home and receive the entire loan in a lump sum. This infusion of cash is often a saving grace for many borrowers.