When it comes to getting a second mortgage, you will most likely end up paying an interest rate that is higher than the one that you got with your first mortgage. The reason for this is because of the fact that the lender is taking a greater risk with this kind of a loan.

If you happen to default, the only way that the lender will be able to recover their money is if the first mortgage has already been paid in full. Plus, legal fees, processing costs and any municipal taxes will have to be paid before the lender would even get a dime. This is why sometimes the lender will decide to go ahead and take on the initial mortgage just to hold on to their claim on your property. However, this option can be quite costly for the lender, not to mention the fact that it will take up a considerable amount of their time and effort.

There are several things that a lender will take into consideration when determining the interest rate on a second mortgage. The first thing that gets considered is the applicant’s credit history. They will also take a look at your income in comparison to your monthly expenses. The condition that the property is in, along with its location will also have an effect on the interest rate that you are able to get. They will also consider the amount of debts that you will have once you receive their loan, along with the Loan to Value ratio, meaning the amount you are borrowing versus the amount of equity that you have in your home.

In certain instances, you may be able to secure up to 80% of the current value of your home. This depends upon how good your credit history is, if you have a reliable source of income and if your debts are fairly low. Plus, if all of these factors are in order, you may even be able to get an interest rate that is comparable to that of your first mortgage.

On the other hand, if your credit history is poor, your income is unstable and you have accounts in collections or owe on your taxes you will probably get more like 65% of the current value of your home. The interest rate will then compare to what you would get with a consumer loan.

If you are willing to pay more in interest, you can sometimes find a lender that will be willing to overlook these guidelines and base your loan amount solely upon the amount of equity in your home. Of course, the interest amount that you will end up getting charged will be similar to what you would be likely to get from a credit card.

There is a lot to know regarding the ins and outs of this type of a loan. By learning about everything that a second mortgage entails, you will find that the whole process will go much more smoothly and you will have a more satisfying experience overall.

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Category: Finances
Keywords: Second Mortgage