How to Find the Ideal Second Mortgage Loan

A second mortgage is a great option if you need a substantial amount of funding for a critical expense. It lets you use the equity you have in your home against the house as collateral. But a second mortgage is not a loan you can take without proper research or thought. It puts your home at risk, and in the event of a default, the lender has a claim over your home. Homeowners should think twice before taking out a second mortgage by consulting a knowledgeable family member first and understanding how the process works by talking to their mortgage brokers. If you are sure about applying for a second mortgage, here are some things that will help you find the ideal loan.

Manageable fees

A second mortgage usually comes with hefty fees and charges, similar to what you paid for your primary/ first mortgage. An online comparison of loans offered by many different lenders will show you the range of fees that may be charged. Shortlist a few reputed and well established lenders who offer the lowest fees. Partnering with such lenders guarantees that what you are told at the time of application is exactly what you pay. Signing up with little known lenders can prove costly if they have conveniently forgotten to inform you about some concealed fees during initial discussions. A good way to find a low fee mortgage or one with discounted fees is to go with your bank or credit union or even the lender who has loaned you your first mortgage. These lenders may reduce or waiver some fees because of your existing relationship with them.

Interest cost and APR

An ideal second mortgage is one that has the lowest APR. The U.S. Government’s Truth in Lending Act stipulates that lenders quote the APR of the loan along with the conditions for second mortgage loans. Those who are unsure about what APR is should get it explained by their mortgage brokers. The APR includes the charges and fees payable on the loan in addition to the interest rate. In effect, when you look at the APR of a loan, you know exactly how much you will end up paying in total whereas the interest rate represents only a part of this total. However, when comparing APRs, you need to see if all the loans you are comparing include the same cost components. The APR may include PMI (Private Mortgage Insurance), processing/ application fees, and discount points. Other fees like appraisal fees, credit report fee, and inspection fees may be included at the discretion of the lender. These fees may vary from lender to lender. It is important to see if all the compared loans include the same fees in order to make an accurate comparison.

Prepayment penalty

Your ability to repay the loan may change over the years. If you unexpectedly come into money or get a better paying job, you may want to prepay the loan and get rid of your debt. Else, the interest rates may fall in future, making it attractive for you to refinance the mortgage. In both these cases, a hefty prepayment penalty on your mortgage will eliminate any cost savings you stand to gain. Check if such penalties exist and if so, how much will be charged. In general, it is best to opt for a second mortgage which comes with a zero prepayment penalty so that you have the flexibility to pay off the dues at your convenience.

In addition to carefully assessing rates, fees, penalties associated with second mortgage loans, you also need to be aware of your rights as a borrower. At any point within 3 days after signing the loan, the law allows you to cancel the deal. The cancellation must be intimated in writing, in which case the lender is obligated to make full refund of any payment made, without any charges or penalty. It is recommended to engage the services of mortgage brokers to help you find suitable lenders.

For more information on second mortgages or to talk to mortgage brokers in Canada, contact Canadian Mortgages Inc.