Taking on a Second Mortgage

Do you own the property that you live in and need money for home improvement? Do you need money to pay off your bills? In any case, you can apply for a second mortgage, also called a home equity loan. Equity loan will allow you to borrow money against the equity that is in your home. In time of need, a second mortgage is a good source of money. It also has advantages over other types of loans. The main advantages are lowest internet rate that may be tax deductible and the ability to borrow larger amounts of money. However, it is not recommended that you use your home to borrow money, unless you really need it. If you have decided that taking out a second mortgage is a way to go, here are things you should know.

Before Taking a Second Mortgage

I am sure that you have seen and heard advertising from different lenders. Sometimes, their offers sound very good. You should keep in mind that lending money is just a business, and you should be very careful about with whom you will deal. When considering a lender for your second mortgage, right from the start, you should watch for signs of bad business. Do not let anyone pressure you into taking more money than you need. Obviously, the larger your loan will be, the more profit a lender may make. Make sure that you are comfortable with the monthly payments of your second mortgage. You should always stay over from a lender requires you to falsify the information of your loan application. Just like when purchasing anything, take the time to shop around. Most importantly, take the time to understand how loans work. The annual percentage rate (APR) is perhaps the most important factor to consider, when applying for a second mortgage. APR is not only the interest rate you will own to your lender. It is also the points (a point is 1% of the loan), the fees of the mortgage broker, and other charges that you will have to pay. Usually, the lower the APR, the lower the cost of your loan will be. In general, make sure you understand every single term of your second mortgage. Ask questions repeatedly, until you are completely comfortable with everything. Ask questions about points and fees, about the term (in years), about if your monthly payment will be unchangeable throughout the loan. Is there a penalty if you will pay off the loan early? In general, ask your lender to explain to you all of the penalties and restrictions of your loan. Also, discuss with a lender if the loan includes a charge for any type of insurance, and if you really need insurance.

Once You Have Chosen a Lender for a Second Mortgage

Once you have chosen the best possible lender for yourself, you should not stop trying to better the deal. In other words, do not feel uncomfortable to negotiate. Ask the lender if there is a chance of a lower APR. Of course, make sure you will understand every paper that you sign. You can also request blank copies of everything you are required to sign. A lender is not required to do so, by regulations. However, if a lender is confident in the terms of the loan, they will not have a problem with you having blank copies. Having blank copies of the documents you will have to sign, will give you more time to go over them. Furthermore, you will have the time to discuss the loan terms with someone you trust. If at the time of closing the terms suddenly differ from what you were expecting, do not take it lightly, and do not sign the agreement, just because you feel obligated. In general, do not initial or put any kind of signatures on anything, before you understand all of the terms. If you feel uncomfortable with the terms, again, do not feel obligated to do anything. You should just walk away and shop for a loan somewhere else. If you will choose to walk away from a particular lender, take the copies of all the papers that you have signed (if you signed any). This will give you a chance to discuss your rights and obligations with an attorney.

After a Successful Closing

Sometimes, all of us have second thoughts. Let us say that you have just come home from a closing, and you have realized that taking a second mortgage was a mistake. In that case, there is no need to panic. According to the Lending Act, most home equity borrowers have at least three business days to cancel the loan. This right is known as “Rescission.” In order to rescind, you must notify the lender in writing. Again, this must be done within three business days after closing. In some cases, you may have months or even years to cancel a loan (consult with an attorney). After rescission, the lender usually has 20 days to return everything you have paid and to release any security interest that is in your home. If you feel that the lender have violated your rights, if should consult The Home Ownership and Equity Protection Act (NOEPA). In certain situations, NOEPA may give you additional rights. Once again, the best protection against all of the downfalls of a second mortgage is to carefully consider, if there is a need for it.