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When to Apply for a Second Mortgage
A secondary mortgage is similar to your first home loan. It's just the borrower applies for it after he or she is done paying their first mortgage. There are several reasons why homeowners opt to get a second mortgage. Events such as paying off debts, financing house renovations or just to cover a portion of the down payment on their first mortgage. A second mortgage usually has a much higher interest rate when compared to the first mortgage. The loanable amount is based on the house’s equity. It is the difference between the amount that is owed on the property and the most updated value of the real estate.
Homeowners who would like to have a second mortgage loan can usually choose from a year or as long as 20 years for the mortgage term. Homeowners will be charged with a higher monthly statement if they choose a much shorter term. However, selecting a longer term may mean that their monthly statement may be much smaller, but they’ll be paying a much more in the long run. So if you decided to get a second loan to do some renovations, it would be best to choose a much longer term so that you won’t be surprised about your monthly mortgage payment.
Like all lending companies, mortgage lenders do charge a lending fee. That’s on top of the closing costs as well as loan origination fees, appraisal costs and also mortgage points. Mortgage points are fees that can be used to lower the interest rate on the loan. One point is equal to one percent of the money that is borrowed. So if in case you borrowed a total amount of $25,000 to make some renovations, purchasing 8 points for your loan would cost $2,000.
The same process you went through with your first mortgage will be the same as for your second loan. You need to prepare all the paperwork and personal information that’s required before you apply for a secondary mortgage. Keep in mind that there are other fees involved in your new mortgage request. So it would be best to have an extra stash of money hidden if in case you need it.