A second mortgage is a great way to use the equity you have built up in your home. It gives you access to a large sum of money, which may be difficult to raise from other sources. For expenses like higher education, medical treatment or a major remodeling of your home, these mortgages are the ideal solution. However, there are some pitfalls with these mortgages which you must be aware of before you sign up for one. This will help you get the best possible loan with terms that suit your financial capacity and your need for funds.

Shopping for the Best Loan

There are a number of lenders in the market offering second mortgage deals with different clauses, conditions and interest rates. Make sure you study a good sample of these products before you identify one to go with. An online comparison tool can make this easy and effective.

Hidden Charges

Some second mortgages have hidden charges in the form of massive term end payments. These are called balloon payments and a loan which has a very attractive interest rate or very easy terms may be concealing a payment like this. Ask your lender or broker clearly if the loan you are considering has any balloon payments. Also ask for an idea of what the total costs including appraisal, processing and others fees and charges will be. Make sure your application fee will be refunded if your loan application is declined.

Package Offers

Some lenders offer mortgages along with insurance policies as a package deal. A few of these may actually be attractively priced, but generally it is a good idea to avoid such packages, especially if you already have adequate insurance. When assessing such package deals see if the cost of the different components offered is significantly higher if they are taken individually outside the mortgage. Are there other benefits to combining the different products? Unless you can see some clear and substantial advantages, avoid packages.

What is the APR?

APR gives you a much more accurate picture of what you will actually need to pay periodically towards the loan. It is a figure which is arrived at after including the various fees, costs and charges that go with the loan. This is a good way to find out about hidden balloon payments. If a lender doesn’t seem inclined to share the APR, then avoid him.

Good Faith Estimate

Ask your lender to give you a Good Faith Estimate for the loan which details all expected costs which will be incurred in the loan. GFE can tell you exactly what the charges are and what they will be used for.

Understanding the Risk

Finally, before you sign on the dotted line, you should understand that a second mortgage is a lien on your home and can result in foreclosure if you don’t keep up with your payments. Considering the risk to your home, you should think carefully before taking this decision.

Author Bio: For more information on second mortgages or mortgages in Canada, contact Canadian Mortgages Inc

Category: Finances
Keywords: second mortgage