Getting a Second Mortgage
Buying a home is one of the most important financial moves a person can make. There are many different thoughts and processes that go into your mortgage and many people later get a second mortgage. What do you need to know about getting a second mortgage so you can understand if it is a smart decision for you?
Well, the period of a second mortgage can vary from as short as one year to as long as even 15 to 20 years. The repayment terms will vary according to the institution that you take the loan out with and the terms of your loan. For example, if you are only borrowing $5,000 or $10,000, you might be able to repay that in one to two years without the monthly payments being too high. If you take a loan out for $20,000, you may find that one year is too short a term for you to be able to pay that back.
You need to be sure that you are going to know what your monthly payments are and what they will cover to be sure you can handle paying for the repayment of the mortgage. The interest rates will vary according to what your mortgage terms are so you will need to be sure about these upfront.
If you get a "balloon loan" you will not be required to make monthly payments on the principle of the loan. Instead, the entire loan amount will come due on a specific date and you will have to be sure you have made arrangements to have it paid by that date.
If you have a home equity line loan then it works a little differently. The loan company may not tell you the exact amount of your monthly payment but they will explain to you how that number is going to be figured. For example, it may be a percentage of what your loan balance is. You may be required to pay 5% of the remaining balance of your loan. Since the balance of the loan will go down each month, the amount of interest being charged to you and your account will vary but it will always be 5%.
You also need to keep in mind that there may be other fees and charges besides just the interest. Most companies will charge you a fee for the loan and this is often referred to as points. The points are a percentage of the loan amount. One point is typically 1% of the loan. For example, if you borrow $20,000 with a fee of 6 points, then the company that gives you the loan will charge you 6% in "points" for giving you the loan.
You should shop around with different companies to try to find the one with the lowest point fee structure to save yourself money on the loan. You should also check to see if your state has limits on the fees a company can charge on a second mortgage. Also be sure you are completely sure of the amount of fees before you sign anything. You do not want to get locked into a contract that will charge you a fortune in fees.