There are many reasons for refinancing your home and taking out a second mortgage. One common reason is when the average interest rates on the market drop significantly lower than the interest rate on your mortgage loan, and you want to take advantage of these savings. A refinance second mortgage is an option available for you. Acquiring a second mortgage loan follows similar steps to taking out a mortgage loan: make sure your credit score is good, shop around for a good lender, and be aware of upfront fees.
1. Make sure your credit score is high
Interest rates for second mortgages are based primarily off of your credit score. If your credit score is poor, or less than 600, then you will likely be given a high second mortgage rate. On the other hand, if your credit score is high, then your interest rate will be comparatively low.
If you do not need the second mortgage immediately, you might want to consider holding off on the second mortgage home loan for about a year. This will give you an opportunity to get your finances in order and improve your credit score
. Low credit scores are caused by missing payments and not making payments in full.
By creating a budget, making at least the minimum payment on your credit card bills, and paying the monthly payment on your mortgage and other loans, you will be able to increase your credit score. Although this may seem like a lot of work just for a lower interest rate, the results are worth it.
Sometimes waiting for your financial situation to improve is not always the best option. In this event, a subprime second mortgage becomes an option. Borrowers of this type of second mortgage often have bad credit, but need a loan without spending thousands of dollars for another type of loan. This will allow you to acquire a subprime second mortgage, with the added benefit of the interest on this second mortgage being tax deductible.
2. Shop around for the best lender
Finding a second mortgage lender is similar to finding the right car: shop around, test drive, and research. You need to first shop around for a good second mortgage broker. Do not settle for the first lender you come across. Talk to each lender and find out what the interest rate, term, and monthly payments would be if you took a second mortgage from them.
Take this information and put it into a table format. This will allow you to compare each second mortgage lender and see which will be able to provide you the best second mortgage rate and will not gouge you on fees. The last thing you want is for your lender to be charging you high fees and high rates. Although the first lender may be a smooth talker and act like your interests are the most important, the lender’s fees may be sky-high.
3. Prepare for second mortgage costs
You also need to prepare for an additional second mortgage costs. These costs include more than the mere monthly payment you are used to paying through your original mortgage. Upfront costs vary lender to lender, but many charge appraisal fees, application costs, and closing costs. Some of these fees, such as the application fee, are not refundable if you are declined for a loan.
Some lenders enjoy gouging the potential borrowers to get all the money from them that they can. Instead of charging the typical fees and costs, they raise the prices in order to benefit from the raised fees. The fees to watch out for include appraisal fees, title insurance, documentation preparation, settlement, appraisal review fees, administration fees, processing fees, mortgage broker fees, and additional interest.
This is where comparing the fees and rates of each lender you talk to are so important. Becoming familiar with average fees and comparing fees between lenders will help you make a decision which will save you in upfront costs. Although not all upfront costs are low and avoidable, there are many which are tacked on for no reason except to get extra money from you.
A second mortgage calculator can be used to help combine these costs with your loan and interest rate to come up with your monthly payment. These calculators are available on the Internet for free and are very useful in performing complicated calculations to save you trouble and help you budget.
Taking out a second mortgage can provide you with a lowered interest rate, saving you money in the long run. It also allows you the opportunity to access additional money for home repairs or debt consolidation. If you think you will be taking out a second mortgage in the upcoming months, try to get your financial situation and credit score in order, start comparing second mortgage lenders, and set money aside for upfront costs that typically come with these loans.