Advice for the Second Mortgage Hunt

The road to obtaining a low-rate second mortgage is filled with potholes and dead-end detours. Follow some basic guidelines, however, and you can navigate your way safely to your mortgage closing.

Elmer Fudd, the famously inept big game hunter who's chased Bugs Bunny for decades, never could seem to catch his "wabbit." When you're hot on the trail of a second mortgage, it's easy to get similarly duped if you aren't adequately prepared.

Talk with the experts

Lenders are experts on mortgage loans, but not necessarily experts on your financial situation. The best ones will ask you questions and make recommendations about which second mortgage program might be the most suitable for you. These recommendations, however, are based only on what you tell them. For this reason, it's a good idea for you to consult with a trusted financial advisor or tax professional before making a decision on that second mortgage. Your trusted advisors will know what questions you should ask and what circumstances you should bring to your lender's attention.

Get it in writing

Make sure that you receive written information about your prospective mortgage. Your prequalification letter should be accompanied by some general loan information. After you submit your loan application, you'll receive a firm quote that contains the terms of the proposed loan. Read this information carefully; it should include the second mortgage's APR, and all repayment terms. If you're applying for an adjustable-rate home equity line of credit, pay attention to the rules governing how and when the interest rate can be adjusted. Be concerned if you don't receive a full quote in writing once the loan is approved. By law, the lender has to provide the APR and other loan terms to you during this part of the process.

Learn the lingo

If you haven't developed your mortgage loan vocabulary, you won't be able to make much sense of your loan quotes. You also might have trouble communicating with a tireless lender who tends to forget that most people don't speak in abbreviations. Do your research. Some terms to become familiar with include LIBOR, prime rate, teaser rate, floor, ceiling, and cap.

Shop 'til you drop

You won't know if you're negotiating with a crooked lender unless you have some basis for comparison. It's rare that a lender will intentionally put you into an overpriced loan, but it can happen. More commonly, you might end up paying a slightly higher rate than if you'd simply shopped around. Even on a small second mortgage, just a few tenths of a percentage point can make a difference. Shopping around also gives you the security of knowing that you're getting a great deal.

Elmer's hopeless and miscalculated rabbit hunting might be amusing to watch, but it's no standard to follow. Protect your interests by pursuing your second mortgage with knowledge and purpose.