Tips for a Second Mortgage

If you already have a mortgage on your house and you are in urgent need of cash, going for a second mortgage is also an option. With reference to the first one, a second mortgage is both subordinate and consecutive. This is because, should you default on the first mortgage and your home goes into foreclosure, the second mortgage will be paid only after the first mortgage is fully paid. If you have any intentions of going for a 2^nd mortgage, here are some vital tips for you:

Only go for 2^nd mortgages if you can’t refinance

Consider going for a second mortgage if it is the only way out. If you are unable to pay your first mortgage, think about refinancing instead of opting for a second mortgage. When you refinance, you will not jeopardize equity on your property and you may access funding at reasonable rates.

Allocate the attention that is required to fully understand the implications of a second mortgage. They are just like any other loan, and may have unfortunate financial ramifications if you are not careful with them. If you were planning to go for one, here are some tips to help you get the best results:

Be ready to pay higher interest

One thing you should be prepared for when considering second mortgages is the relatively higher rates. Since the second mortgage lender has no first claim on your property, should you default on the first mortgage and your home goes into foreclosure, the interest rates are likely to be quite high and you should prepare yourself for this. The rates are sometimes higher simply because the lender will not have the first claim on your property should you default on the payment.You should also be aware that defaulting on your second mortgage while you pay your first mortgage regularly may not save you from losing your home. Some second mortgage lenders may decide to buy the primary mortgage and then opt for foreclosure to recover their money. To mitigate their risks therefore, they tend to use slightly higher interest rates. However, the rates should not be exorbitant and should you have a feeling that they are higher than normal, simply search for another lender.

Don’t forget about the fees

The fees and other charges when taking on a second mortgage, can be intimidating. The paperwork involved is immense and the lender may also decide to go for a fresh appraisal on your property. These, and many other tiny details may see you depart with a huge amount in terms of legal fees, appraisal fees, application costs, and much more.

Be careful about the timing

Timing your second mortgage is very vital. You should know that the amount of the loan you will get, will be determined by the amount of equity you have within your home, which in turn will be based upon the value of your home, from the time you took on the first loan. If the housing market is low, you should hold on till the prices go up. Again, if the interest rates are low, don’t wait for them to go up high before you apply for the mortgage, especially in instances when you can lock-in a fixed rate.