Tips On Taking Out A Second Mortgage

When a home-owner decides to borrow more money on built-up home equity as a second loan rather than refinancing the original loan, it’s referred to as second mortgage. The original mortgage taken out on the property is the primary lien until it’s paid off. A second mortgage can be obtained after a home-owner has built up enough qualifying equity in the property.

Getting a Second Mortgage

Obtaining a second mortgage follows similar steps as getting a first mortgage. The borrower is really acquiring new loan. As with the first mortgage, the borrower will be required to provide the lender with all the necessary personal documentation to determine whether the loan can be financed. And like the first mortgage, there will be appraisal fees, loan origination fees and closing costs.

It’s not uncommon for a second mortgage to be more difficult to get than a primary mortgage. The reason is that the first mortgage will always take precedence over a second or subordinate mortgage. With the second mortgage, the lender knows that if the first mortgage forecloses on the property, the original loan will be paid first and only what money is left will get paid towards the second mortgage, along with any other subsequent mortgages taken on the property.

Interest Rates on Second Mortgages

The current lending market is highly competitive, making mortgage rates affordable and in many cases, interest payable is below the prime lending rate. If a borrower has a fixed rate loan, the interest rate is set for the life of the mortgage.

Adjustable-Rate Second Mortgages

Many lenders also offer adjustable rate mortgages, also know as ARMs. If a borrower decides to go with an ARM, the adjustable rate parameters of the loan should be spelled out by the lender and fully understood by the borrower. For more information on adjustable rate mortgages, read the following articles: Adjustable-Rate Mortgages: Use With Caution, Different Types of Adjustable-Rate Mortgages and Adjustable-Rate Mortgages: How They Work. When obtaining an ARM as a second mortgage, borrowers should keep in mind the following:

• Whether there are limits to the interest rate adjustment 
• When the company has the right to change the interest rate
• How often the interest rate can be adjusted

Second Mortgage Costs

Most lenders charge borrowers a fee for lending money. The fee is typically a percentage of the loan, referred to as points - One point equal to 1 percent of the amount borrowed. The number of points lenders can charge will vary, so borrowers need to shop for the best deal. Many states have a set limit on the amount of fees that lenders can charge on second mortgages. Before taking out any loan, borrowers should always get the amount of fees that will be charged in writing.

Length of Second Mortgages

The length of terms of second mortgages will differ from one lender to another. Some second mortgages may extend 15 to 20 years, yet others may require the borrower to pay it off as early as 1 to 2 years. Borrowers need to find a mortgage lender that offers the right terms for his or her individual financial needs.

The ability to use one’s property as collateral is one of the many advantages of home ownership. Home-owners with enough built-up equity are able to obtain a second mortgage. As with all mortgages, borrowers should shop around for the best deal and make sure they fully understand the terms of the loan before signing anything.

For more information on mortgage loan programs, visit the website of New Homes Central Lending.

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