Second Mortgage Tips – Ready To Get An Approved Loan Again?
2nd Mortgage – Property Appreciation
Property values change over time based on different factors, and it may be that the property you currently own is worth much more than when you purchased it. This is known as an appreciation in value in the 2nd mortgage home loan market place and it’s a key factor that lenders will look at when considering an application for a second mortgage.
When the property value appreciates, this decreases the percentage of the value you need to borrow. There was a time when 2nd mortgages were fairly easy to obtain, but in current times, lenders are more comfortable making this type of loan only if you have sufficient equity in the property.
2nd Mortgage – A Lender’s View
A lender or mortgage broker will see you as an attractive potential client, if you have handled your loan well to date. This means making repayments in a timely manner so that you do not pose a risk to the lender. A good history of making payments and appreciated property value will help land you the best options in home loans available.
2nd Mortgage – Things to Know
If you are planning to obtain a 2nd mortgage, make sure you have a reason why. Lenders will inquire why you are seeking a 2nd mortgage. Some common reasons include:
- Home renovations or additions
- College tuition
- Debt consolidation (only in certain situations)
- Large purchases (automobile, investment property)
- Medical or dependant care expenses
Much of what a lender will approve has to do with your prior purchasing habits, credit history, and the reason for the loan. If you inform the lender, the loan is for a profligate expenditure, odds are your application will be declined.
2nd Mortgage – Other Tips
- Use an online loan calculator to run some numbers and see if your budget can handle the additional payment on the additional loan.
- A broker or lender can advise you best on whether you should get a 2nd mortgage or refinance your existing loan instead.
- There may be additional costs involved with a 2nd mortgage, such as PMI (Private Mortgage Insurance); be sure to ask your lender all costs associated to avoid any surprises, including fees and closing costs.
- A property appraisal will almost certainly be required, so plan to arrange for this service allowing sufficient time to schedule a qualified appraiser.
- You can expect a higher interest rate on the additional loan than the current advertised interest rates.
- Be prepared to answer questions about your property; you should know the balance of your current loan as well as the worth of your home.
- Fortunately, property insurance and taxes are only charged on the first loan; those charges are not assessed on a 2nd mortgage loan.
- Many borrowers find that the lender holding their first mortgage is more inclined to offer better options since they are an existing customer with a known history with the bank.
- Make sure the gain is worth the risk; you are risking your home when you take out an additional loan, so careful consideration should be given as to the consequences that can result if you are unable to pay it back.
A reputable lender or loan broker will be happy to advise you on whether a refinance or an additional loan is right for your purposes. Any type of loan is an important financial decision, so it is recommended to weigh all options and talk to those knowledgeable in the lending industry before you move forward.
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