Second Mortgage: 4 Things Worth Knowing Before You Complete an Application

Not everyone is a suitable candidate for a second mortgage. By second mortgage, we don’t mean getting a mortgage on a second property, but rather, we are referring to taking on another mortgage after an existing one has already been secured by the same property. If you were considering applying for a second mortgage, here are a few things worth knowing before you proceed:

Private Lenders Have Flexible Qualifying Terms

Private lenders tend to be more flexible when qualifying you for a loan as compared to traditional lenders. If you are having trouble in terms of securing a second mortgage with the lender who holds your current mortgage, private lenders can also be a viable option worth considering. Most of them will be patient and are willing to work with you until a solution is found that accommodates both of you.

Second Mortgages Come with Higher Rates and Fees

Both the second mortgage loans from traditional lenders and private lenders will always be accompanied by higher rates and fees compared to the first mortgage. This is because the second mortgages come with additional risks and lenders are very much aware that they will be paid second; only after the first mortgage has been cleared. As a result, second mortgage loans are usually characterized by high interest rates as well as an upfront fee.

Increased Payout Penalties and Renewal Fees

If you will be using private lenders for your second mortgage, you should watch out for renewal fees and increased payout penalties. Private lenders are not governed by the usual bank rules and they can ask for less qualifying documents or lend to higher loan-to-values and in return charge higher renewals with exorbitant payout penalties. Such terms will always be included in the fine print, thus you need to take your time and read all the terms and conditions that accompany the loan.