A second mortgage rate is determined on an individual basis. It is created by the lender based upon a variety of different factors. The lender is going to be strict with the criteria for qualification with a second mortgage loan because they are taking a greater risk then with a first mortgage. It is important that you understand the factors that lenders use to figure your second mortgage rate.
Credit Worthiness
The largest consideration in coming up with your second mortgage rate is your credit worthiness. The lender is looking to make sure that you are reliable. They will want to see that you have few or no delinquent accounts on your record. They will also look closely to what has happened just prior to your application for the loan. If they spot signs of trouble it could raise your rate.
Ability to Pay
Lenders will also want to make sure that you can afford the loan. They will look at your income, current debt and your employment history. The lender will want to see that you have sufficient income to handle your current debts and the new mortgage. Additionally, they will want to ensure that you will continue to have reliable income by checking to see how long you have been employed and the stability of your employment history. If you have limited income, high debt or an unstable employment history then you will end up with a higher rate due to it.
Current APR and Trends
The lender will set your second mortgage rate by figuring in the factors of your credit worthiness and ability to pay, but they also go off the current APR. That is the lowest possible rate and then they add onto it depending on the risk they feel you will be.
Besides the current APR, trends in the industry also will play into your second mortgage rate. The lender will want to be competitive in the market by giving good rates compared to what other lenders in the market are giving. This could actually be to your advantage and help you get a lower rate.
Figuring your second mortgage rate is something you have little control over, but understanding how the lender comes up with the rate can help you when you are negotiating with them. If you feel you are little risk and they give you a rate you think is too high then you know what you can say to get them to lower it. You have a great advantage when you understand how lenders figure your second mortgage rate and you will find it makes for a great tool when you go shopping for your second mortgage.
The cost of second mortgage loans is often a second thought to a borrower. That is not how it should be, though. The costs should be at the forefront of the deal. A borrower needs to consider the costs of the loan to see if the loan if affordable and if it is reasonable. Additionally, the borrower should negotiate the costs to get the best deal possible.
A second mortgage loan is basically borrowing money from the equity in your home. When you seek out a lender they are going to try to make the loan as expensive as possible. That is how they make their money. You have to be responsible for watching out for too high rates and costs so that you can get a good deal and make the most out of your loan.
Here are some costs to watch out for:
Interest Rate: Perhaps the most important cost. You need to calculate the interest you will pay on the loan. You want it to be reasonable and not too much or else the loan is really not worth risking your home and credit over.
Closing Costs: As with any mortgage, you will have to pay closing costs, like appraisal fees, application fees, points and anything else the bank needs to close the loan. Points are an important thing to understand. Points are the banks fees. They are a great thing to negotiate because they are simply the banks way of making money. Put your foot down about points and demand a good deal.
Hidden Costs: Sometimes you may not notice something like an insurance premium tacked onto your loan. You may also be agreeing to a balloon payment at the end of the loan. Make sure you know all the costs associated with the transaction and ask questions about anything you are not sure of.
Once you know all the costs you need to figure them up and see how much this loan will really cost you. Make sure it is worth paying. Make sure that getting this loan is important enough to pay the amount of the costs for. You do not want to get the loan and then regret the expense later.
Staying on top of the cost of your second mortgage loans is important. Banks take a lot of liberty with costs involved in second mortgage loans. They see them as a risk and justify that by charging you extra money to get one. Some people are in such need for the money that they do not even consider they can save themselves money in the long run by shopping around and negotiating over costs.
This website uses cookies that are necessary to its functioning and required to achieve the purposes illustrated in the privacy policy. By accepting this OR scrolling this page OR continuing to browse, you agree to our Privacy Policy