Second Mortgage Rates — Pros and Cons

Second mortgage rates are the interest rates that are charged on the different home equity loans that an individual acquires.

What is a second mortgage? A second mortgage can is the home equity loan that you borrow after the first mortgage.

In most cases; the home that was bought by the first mortgage is used as collateral.

This article seeks to explain the second mortgage rates, its pros and cons so you will be able to make informed decisions. Read on.

Second Mortgage Rates

There are two types of second mortgage rates.

1. Fixed rates

Fixed rates are charged on a one time home equity loan. Usually, the home equity loan takes a longer time to repay.

It may take between 15 to 30 years. During this period, the interest rate on loan is fixed.

For example, if you are given a mortgage at 10% interest, which is what you will be paying until you’ve cleared the loan.

2. Variable Rates

While the fixed rates do not change, variable rates do change from time to time. This rate is applicable to the home equity line of credit (HELOC) type of mortgage.

The home equity line of credit is synonymous with a credit card as you repay the loan. The credit line revolves, and you get to use it again and again.

This type of loan takes a shorter time to repay between 5 to 20 years.

Pros of a Second Mortgage

1. A second mortgage is an easy way of acquiring finances that you cannot get without having your home as collateral.

2. Interest rates are lower compared to the interest rates charged on the first mortgage and other loans, for example, personal loans or credit cards.

3. If the second mortgage loan is used to improve on the first home, then the interest rates can be tax-deductible.

Cons of a Second Mortgage

1. High risk of foreclosure. If you are unable to pay your monthly premiums on time, then your lender can foreclose on your home.

2. In case you want to refinance, the mortgage can be an obstacle to you achieving this.

3. Closing costs such as origination fees, title fees, and an appraisal can be damn expensive. However, most of these charges are negotiable.

Conclusion

Finally, a second mortgage is only valuable if put to good use. Taking a loan to spend on luxuries is not wise.

Also, take a loan that you can pay on time to avoid foreclosure in which way you risk losing your home.