2nd Mortgage Loan – The Smart Homeowner Guide

If you are planning on taking out a second mortgage on your home there are a number of things you need to consider before applying. Careful financial planning when it comes to your mortgage and your budget will make your life easier down the road. Here is how to go about it.

If you have settled on a 2nd mortgage instead of a home equity line of credit, the process you will go through to get this mortgage will be very similar to when you first purchased your home. You need to research 2nd mortgage lenders and shop for the right loan for your situation. Taking out this second mortgage is going to cost you money; you will most likely have to pay an application fee, various lender fees, and closing costs.

Learn The Costs Before Applying

Because taking out a 2nd mortgage is a large out-of-pocket expense, you need to research all of the costs. When shopping for a 2nd mortgage pay close attention to all of these fees. Home equity lines of credit have the disadvantage of variable interest rates; since you are applying for a 2nd mortgage and not a line of credit make sure the loan offering you consider has a fixed interest rate for the entire duration of the loan. Make sure the lender is disclosing all fees for the 2nd mortgage you are applying. If you are working with a lender that is delaying providing this information you may be dealing with a dirty mortgage lender.

Know Your Budget Before Applying

Even though you own the equity in your home, a 2nd mortgage is a loan you will have to repay. The 2nd mortgage you take out is secured by your home just like your first mortgage. If you default on either loan the mortgage lender will foreclose and take your home.

2nd Mortgage Quick Tips

Getting a Successful 2nd Mortgage

2nd mortgages can be tempting because you can get a large amount of money. However, there are some common pitfalls you should keep an eye out for. Take a quick glance over these 2nd mortgage quick-tips. You’ll be in a better position to negotiate the best 2nd mortgage.

2nd Mortgage Quick-Tips

Watching these factors will help your 2nd mortgage be a success:
The APR. Don’t take the first 2nd mortgage rate you see. Contact at least one bank, one credit union, and one dedicated mortgage lender about your 2nd mortgage.
Try to avoid 2nd mortgages with default penalties applied when you miss a payment or are late. We all think it won’t happen to us, but a clerical error can become very expensive. The interest rate on your 2nd mortgage could increase dramatically.
If things change, you don’t want to pay a hefty prepayment fee to get your 2nd mortgage off the books. Flexibility is important, so avoid locking yourself in.
Beware of 2nd mortgages that are bundled in with voluntary insurance policies. While this coverage may be useful, you may or may not need it bundled into your 2nd mortgage. Furthermore, you may already have adequate coverage outside of the mortgage.
Know about any balloon payments in the deal. Some 2nd mortgages start with low, easy-to-afford payments (at the cost of a huge payment at the end). Read the contract carefully to see if this is why a particular 2nd mortgage is so attractive.

2nd Mortgage Costs

Now, before you apply for a 2nd mortgage, prepare for and budget for the costs. In addition to committing to a monthly payment, you might have some up-front costs to get your 2nd mortgage processed.

* Appraisal fees for your 2nd mortgage
* Points
* Application costs for the 2nd mortgage, which may not be refundable if you’re declined!
* Other closing costs.

For example, they may do a title search for your 2nd mortgage, along with other processes. Just ask for a printed list of these miscellaneous fees.
As with anything, sometimes you get what you pay for. I recommend using a reputable lender that you can trust for your 2nd mortgage, and one who will simply disclose all the costs. If you find a deal that sounds too good to be true, you’re probably missing something in the fine print.
For an introductory overview of 2nd mortgages, visit our page on Advantages and Disadvantages of 2nd Mortgages.