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Second Mortgage Quick Tips

Getting a Successful 2nd Mortgage


Modern home with swimming pool
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Second mortgages can be tempting because they provide access to a large amount of money. However, there are always risks and costs involved. Here are some suggestions to help you get the right loan.

Second Mortgage Quick-Tips

Watching these factors will help your second mortgage be a success:

  • The APR. Don’t take the first offer you see. Contact at least one bank, one credit union, and one dedicated mortgage lender about your second mortgage. Different closing costs and interest rates can get confusing, so compare the APR of each loan (See How APR Works).
  • Try to avoid loans with default penalties applied when you miss a payment or are late. We all think it won’t happen to us, but a clerical error can become very expensive. The interest rate on your second mortgage could increase dramatically.
  • If things change, you don’t want to pay a hefty prepayment penalty to get your second mortgage off the books. Flexibility is important, so avoid locking yourself in.
  • Beware of second mortgages that are packed full of voluntary insurance policies. While this coverage may be useful, you may or may not need it bundled into your loan. Furthermore, you may already have adequate coverage outside of the mortgage.
  • Know about any balloon payments in the deal. Some second mortgages start with low, easy-to-afford payments (at the cost of a huge payment at the end). Read the contract carefully to see if this is why a particular offer is so attractive.

Second Mortgage Costs

Before you apply for a second mortgage, make sure it fits into your budget (build your budget as if you're making the payment now). In addition to committing to a monthly payment, you might have some up-front costs to get your loan processed:

  • Appraisal fees
  • Points
  • Application costs for the second mortgage, which may not be refundable if you’re declined!
  • Other closing costs. For example, they may do a title search for your second mortgage. Ask for a printed list of these miscellaneous fees and figure out if they've been baked into the APR quote you received

As with anything, sometimes you get what you pay for. It's always worth using a reputable lender that you can trust for your second mortgage, and one who will simply disclose all the costs. If you find a deal that sounds too good to be true, you’re probably missing something in the fine print.

For an introductory overview of how these loans work and why you might use one, visit our page on Advantages and Disadvantages of Second Mortgages.

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