Second Mortgage Costs
Many companies will charge a fee for lending you money. The fee is usually a percentage of the loan and is sometimes referred to as "points." One point is equal to one percent of the amount you borrow. For example, if you were to borrow $10,000 with a fee of eight points, you would pay $800 in "points." The number of points or loan fees that a mortgage company can charge varies. So it may be worthwhile to shop around. If the fee seems too high, you may be able to bargain for or find a lower fee. Be sure to get the amount of the fee in writing before you take the loan. Many states limit the amount of fees a second mortgage company may charge on a second mortgage loan. You may want to check with your state's consumer protection office or banking commissioner to determine whether there is a limit in your state.
Length of Second Mortgage
Some second mortgage loans may extend for as long as 15 or 20 years; others may require repayment in one year. You will need to discuss the repayment terms with the individual second mortgage company and select one that offers terms that best suit your needs. For example, if you need to borrow $20,000 to make repairs on your home, you may not want a loan that requires you to repay the entire amount in one or two years because the monthly payments may be too high.
Second Mortgage Rates
If you have a fixed rate loan, the interest rate is set for the life of the
loan. However, many companies offer variable rate mortgages, also known as adjustable
rate mortgages or ARMs. These provide for periodic interest-rate adjustments.
If your loan contract allows the 2nd mortgage company to adjust or change the interest rate, be sure you understand
when the company has the right to change the interest rate, whether there are
any limits on how much the interest or payments can change, and how often the
company can change the rate. You also should know what basis the company will
use to determine a new rate of interest.