When thinking of a second mortgage, this is simply a kind of loan taken after your first mortgage. There are many reasons to get this mortgage like consolidating debts or maybe home financing improvements. The second mortgage is secured with similar assets like in the first and usually brings higher interest rate compared from the first mortgage.
Often the amount of loan that you can borrow is based upon the difference between the present value of the property and also on the amount being owed.
This is also called an amount of equity. One option, if there is no enough equity, is to borrow funds or refinance. The following are the things to consider when looking for the second mortgage;
1. The length of the second mortgage Usually, the length of the second mortgage has terms of twenty years or maybe one year. However, be mindful that when the term of the loan is shorter, you have higher payment. It is often a good idea to speak about the repayment terms with the lending company. This is to make sure you choose the loan suited to your needs as a homeowner. For instance, when you want to borrow cash for the home repair, it is not a good idea to choose a loan that needs loan repayment of 1 to 2 years. This is for the reason that this is very high to handle it.
2. The costs of a second mortgage All companies and mortgage lenders often charge a lending fee. Sometimes the fees referred as “points” and most likely considered as a loan percentage. The one percent that you borrowed means one point. The amount of points being charged by the mortgage company varies. So, it is better to check with some other lenders to obtain the best rate. Before concurring to the said loan, know first the fee in writing. Some countries limit the amount of fee that is being charged by the lender on the second mortgage. The commissioner of the bank and the consumer protection office can give you enough information on each limit. In case there is a limit, you have to compare it from any writing quotes given by the mortgage company.
3. Rates of the second mortgage The loan has a fixed rate if the whole term of the loan remains the same. However, there are some lenders that give variable rate mortgages to the borrowers. These are called adjustable rate mortgages (ARMS). This kind of mortgage has annual interest rate adjustments in the life of the particular loan. The contract allows the lender to adjust or change the interest rate. So, in this case, it is necessary to know when to change the rate and how often. The mortgage company must as well inform what figure to be used in the latest interest rate.
4. Different types of second mortgage There are 2 main types of second mortgage;
• Home equity line of credit This type of credit is similar to a credit card which has a maximum limit. The whole amount can be paid in advance and the line can be kept open for potential withdrawals. However, the line of credit has a fixed life and has duration to make withdrawals and paying off of the debt. If the loan’s life is over, you need to refinance it or pay the whole balance.
• The fixed rate mortgage The interest rate for this is fixed and also the term of the loan. The interest rate is not adjustable and the length is from 15 to 30 years.
The important facts about second mortgage
• The original mortgage lender has the priority over the second mortgage lender.
• The procedure of getting the second mortgage is similar to the first mortgage.
• All paperwork and other personal info must be completed.
• There is a requirement of home appraisal.
• The new lender must have all information to know if they can finance the loan or not.
• This is considered as the new loan, so there are fees involved.
• There are also appraisal fees, loan origination fees, and closing costs. Getting a second mortgage is harder to avail. When the first mortgage is being refinanced, the lender must have the first lien on the property when there is repossession. When you have a second mortgage, there are at least two payments involved every month instead of one alone.
So, when considering a second mortgage, the facts written above maybe could help you widen your understanding.