Second Mortgages What You Need To Know

Second Mortgages What You Need To Know

Second Mortgages: What you​ Need to​ Know
At times in​ life it​ may be necessary to​ come up with a​ sum of​ cash for unexpected expenses or​ even expenses that you​ might not be able to​ afford without a​ influx of​ cash .​
In these cases a​ second mortgage can come in​ quite handy .​
Before taking out a​ second mortgage; however,​ you​ should know how they work and the​ advantages and disadvantages of​ second mortgages .​
Basically a​ second mortgage occurs when you​ take out another mortgage on​ top of​ the​ existing mortgage on​ your home .​
This type of​ loan is​ secured with the​ property for collateral .​
Of course,​ the​ first mortgage takes precedence in​ the​ event that you​ default on​ the​ loan .​
Any funds that are left would then be applied to​ the​ second mortgage .​
Many people commonly use second mortgages for such expenses as​ home improvements,​ the​ purchase of​ a​ second or​ vacation home and to​ consolidate other debts with a​ lower interest rate .​
Of course,​ you​ may also be able to​ use the​ proceeds of​ your second mortgage for other options but you​ should always keep in​ mind that you​ are putting your home at​ risk for the​ purchase and be sure you​ can justify the​ risk for that purpose .​
One of​ the​ major disadvantages of​ a​ second mortgage is​ that the​ interest rate will usually be higher than your first mortgage .​
Lenders insist on​ higher interest rates because they understand they won’t be the​ first in​ line in​ the​ event that you​ default on​ the​ loan and they need to​ protect their assets,​ so they do this with higher interest rates .​
Of course,​ the​ rates are typically lower than what you​ could obtain with any other type of​ loan and much lower than credit cards .​
You should also be aware that you’ll typically be responsible for some fairly significant closing costs on​ second mortgages .​
If you​ can’t pay those fees,​ you​ may not be able to​ work out a​ second mortgage on​ your property .​
Due to​ the​ amount of​ risk involved you​ need to​ be absolutely sure you​ have no other option before taking out such a​ loan .​
After all,​ you​ are risking the​ loss of​ your home,​ so you​ should be sure you’re willing to​ take the​ risk as​ well as​ be relatively sure you​ can cover the​ additional loan payments .​
If you​ do decide a​ second mortgage is​ the​ right option for you,​ be sure to​ shop around for rates before taking the​ first one offered to​ you​ .​
You may be able to​ get better terms or​ a​ lower interest rate by shopping around .​
Always look over the​ terms to​ be sure of​ what you’re agreeing to​ pay .​
One of​ the​ most typical arrangements with many second mortgage lenders is​ to​ tie what is​ known as​ voluntary insurance in​ with your mortgage .​
Depending on​ the​ level of​ your current insurance policy,​ you​ may not need this additional coverage and cost .​
In addition,​ always make sure you​ know how much you’re paying for closing costs,​ such as​ application fees,​ points to​ get a​ lower interest rate and appraisal fees.

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