3 Most Expensive Mistakes People Make With Their 2nd Mortgage Loan
Second mortgages can be great sources of money for home improvements, but they come at a price. A second mortgage uses your home as collateral, so, if you default on payments, your lender can seize your home as repayment. It’s just as important to give as much consideration to your second mortgage as you did your first. Making mistakes can be very costly. This article discusses the three most expensive mistakes that people make with their second mortgage loan and offers advice on how to avoid them.
Basing the Mortgage on Equity
Some lenders will be willing to base the amount of your loan on the amount of equity you have in your home rather than your ability to repay it. This can cause missed payments, defaulted loans, and possibly even loss of your home. Always make sure that you will be able to afford the combined payments on both your first and second mortgages.
Ignoring the Repayment Schedule
Some lenders will only require you to make monthly payments on the interest of your second mortgage. At the end of the loan, the borrower is then responsible for a balloon payment—the entire amount originally borrowed. Unaware borrowers then have to refinance that original principal amount and pay interest on it for an additional term.
Not Comparing Lenders
It easy to go with a lender you know, possibly even the lender who financed your first mortgage. However, it’s always best to get several quotes from different companies in order to ensure you’re getting the best interest rate. A higher interest rate could cost you thousands of dollars over the life of the loan.
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