MickOgrapher's Blog

First, what is a second mortgage?

Very similar to a home equity loan, a second mortgage is basically you borrowing against the equity in your home/property. The max amount provided by second mortgage lenders are based on the following:

For example: (Appraise the value of your home times 80%) – The first mortgage balance.

The first mortgage will remain in place, but in the event of default, the original mortgage would receive all proceeds from the property until it is actually paid off. Seeing how the second mortgage would receive repayments after the first mortgage has been paid off, the interest rate charge for the second mortgage would be a lot higher.

Why would you consider a second mortgage?

If you require funding for major expenses such as hospital care, child education, home renovations, etc. then you might want to consider a second mortgage because it is a better loan than a home equity loan.

Advantages

• · Possibly Tax Deductible Interest
• · Ability To Borrow Large Amounts Of Money
• · Bad Credit Does Not Mean Anything

Disadvantages

• · Interest Rates Are Higher Than Home Equity Loans
• · Risk Of Losing Your Home
• · Large Mortgage Fees

Where to look?

You can find a second mortgage company almost anywhere – A good place to start would be an existing bank or a credit union. At times the lender for your first mortgage may also provide the second home mortgage also; this way you can save a few dollars on fees.

Second Mortgage Lenders

You can find a second mortgage lender at a bank, through conventional mortgage brokers, credit unions, and some private mortgage lenders. Although a second mortgage can be risky to the homeowner, it is a lot safer to use a second mortgage lender.

Costs & How To Search

1. Before you make a decision of your mortgage lender, be sure to shop around to at least three second mortgage lenders such as banks and conventional mortgage brokers.
2. Avoid default penalties because if you miss a payment, it can add a large increased interest rate.
3. Insist for no prepayment penalties.
4. Avoid second mortgages that have voluntary insurance coverage.
5. Ask about balloon payments and if they are considered in the cost of the loan.

Closing costs

1. Appraisal fees.
2. Points – A percentage of the loan amount. For example: if you borrow $100,000, one point is equal to $1000.00 (or 1% of $100,000).
3. Application Costs.
4. Others: Title search, document stamps and other forms for closing that will need to be paid at closing.