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Is It A Good Idea To Get A Second Mortgage?

Dec 7, 2007
Thinking of applying for a second mortgage can sometimes be a tough decision. There are a lot of different things to look at and should be something that you rush into. Just make sure you realize that there are a few essential things that you look at when considering that second mortgage.

Getting a second mortgage means that you already have a first one. Once you have lived in your home for awhile, the property builds up value or what is also called equity. You can then borrow against that equity which is where your second mortgage comes from. There are always risks involved with anything like this, but if you do research and study it out, it may be a great asset to you.

Make sure that your second mortgage does not exceed 80% of the value of your home. A lot of lenders are willing to let you reach up to 130% of the value but this is not always safe. You should plan out how to repay that loan, so that there are not any problems. Also consider that if you default on your loan, or miss a payment, the bank then has the right to repossess your home and sell it to pay off the first mortgage. All left over funds will then go towards paying off your second mortgage. Just think that if you have borrowed up to 130% of your homes value, when the bank sells your home, there will not be enough funds to cover both mortgages. That is why it is always smarter to not exceed 80% of the value of your property.

Keep in mind also that most banks will require that you are paying much higher interests rates on the second mortgage. You can always look around and find the best option for you when it comes to a second mortgage but keep in mind that you will probably not find an APR that is similar to the one on your first mortgage.

Also pay attention to the rates and find out if there are fixed-rates or adjustable-rates. When you have a fixed-rate mortgage (FRM) that means that the rates will not change. They are fixed or set. These are given to you at the beginning of your mortgage and will stay the same until that is all paid off. When you have an adjustable rate mortgage (ARM) that means the loan officer has the right to raise or lower the rates. Pay attention to the type of mortgage that you are signing up for, especially when it comes to fixed-rates or adjustable-rates.

Always look over and study all of the terms of the mortgage. On average, most of the first mortgages require monthly payments over 20-30 years. When looking at second mortgages, the majority of banks want you to pay back the money in 15 years or less. Still others may ask for a balloon payment. This is where you would pay only monthly interest rates but then pay the principal at the end of the term. There are many different things to consider when looking at a second mortgage.
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Court is an expert on auto loans and helps people choose the right credit card offers .
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