Second Mortgage Shopping Tips

Shopping during the holidays is a battle. If you want a Zooble, protective kneepads and goggles are in order. Thankfully, shopping for a second mortgage is a quieter kind of battle—no shoving and pushing required. 

You can manage your second mortgage expectations by estimating how much money you’ll be able to borrow. Conventional wisdom says you can borrow up to 80 percent of your home’s value, including what you owe on your first mortgage.  

Begin the calculation by getting a free, online estimate for the market value of your home. Multiply that amount by 0.8. From that result, subtract your first mortgage balance. The amount remaining is an estimate of how much you can borrow with a second mortgage.  

Clean up your credit report

Your next objective is to see yourself as a prospective lender will see you. Download your free annual credit reports. Review each account in the reports, and verify that all information is accurate. Compare your account balances to your credit limits. If you’re close to maxing out many of your accounts, consider delaying the second mortgage until you can pay down some debt. A delay is also appropriate when you have recent late payments in your file. Your second mortgage will be easier to get and more affordable if you can establish at least six months or more of on-time payments. You might also consider purchasing your credit score from MyFico.com.

Match the expense with the term

Think about your motivation for obtaining the second mortgage. Is it to remodel, to pay for your daughter’s wedding, or to give you a cheap source of funding for unexpected expenses? Clarifying your objective upfront helps you select the right type of second mortgage, i.e., a loan or a line of credit. Loans are appropriate for large, one-time expenses and debt consolidation. Lines of credit can cover smaller, ongoing expenses for short periods of time. 

Comparison shop

Lastly, obtain a handful of offers so you have options. You already know to compare the interest rates, but you should also consider:

• The lender’s reputation and financial stability. Check the Better Business Bureau, and search online for information about your prospective lender. If the lender is also a bank, visit FDIC.gov for further details on the institution’s history and health.
• Second mortgage perks. You may qualify for extra account perks if you get your second mortgage from your regular bank. Remember, perks are only worth something if you’d normally pay for them.
• Total interest costs. A shorter payoff cycle helps keep your total interest costs down.
• Fees. Compare fees and interest rates together. A higher fee might make sense if it comes with a lower interest rate. 

While you might need aggression to grab that Zooble, you mainly need patience to secure the right second mortgage. Take the time to decide what you really need, and then make a plan to get it.