Thank for your question about second mortgage lenders.
Finding a second mortgage lender is not always an easy task. Before you search for a lender, make sure that you prepare yourself to qualify for a second mortgage loan. A second mortgage generally has a higher interest rate than a first mortgage, although it may come with fewer fees. In addition, many lenders do not want to deal with small sums of money, so you may need to shop around.
Second mortgages are often referred to as either a HEL (Home Equity Loan) or a HELOC (Home Equity Line of Credit). A second mortgage means that you already have a first mortgage registered on your property. The mortgage lender grants you a new loan and places a new (second) mortgage on the property, which has an inferior or junior position to your existing, first mortgage. When the property is sold, the second mortgage lender only gets money after the first mortgage holder is paid off. That means more risk for the second mortgage lender and a higher interest rate for you.
Reasons for Second Mortgages and Alternatives
Second mortgages are taken for many reasons including:
- Home improvements or home repair
- Debt consolidation – pay off expensive credit card or medical debt
- Purchase big-ticket items
- Pay for college tuition and expenses.
Before you look for a second mortgage lender, explore your other options including student loans and debt consolidation options. One popular solution is to take a cash-out refinance loan, especially with today’s low mortgage interest rates. In general, a cash-out refinance loan has a lower interest rate than the second mortgage loan, but higher fees.
Second Mortgage Lenders
Most Banks, mortgage lenders and Credit Unions offer second mortgage loans. Here are a few examples of large, national lenders that offer second mortgages:
Wells Fargo: Wells Fargo offers second mortgages in the form of HELs (home equity loan) and HELOCs (Home Equity Line of Credit). Wells Fargo second mortgage loans are either fixed rate or variable rate loans. The repayment terms depend on the type of loan you take. A standard HEL is between 5-20 years. Interest rates vary by LTV and credit score and credit history.
Bank of America: Bank of America second mortgage loans are only for primary residences and come in a variety of options. If you are looking for a second mortgage with a fixed payment and a one-time draw for a debt consolidation or a one-time purchase/payment, then a HEL is a good alternative. Bank of America Home Equity Loan is offered between 3-25 years. Minimum amount is $25,000 and the maximum amount is $500,000 (primary residence) and $100,000 (second/vacation home).
Chase Bank: Chase Bank also offers second mortgages for debt consolidation, home improvements, large purchases or college expenses. The second mortgage must be registered against your primary residence. The maximum amount offered is $500,000 for long term. Most credit unions also offer mortgage loans, including purchase loan, refinance loans and second mortgages. Since credit unions often operate on a local basis, I recommend that you check the terms with a local branch.
Choosing a Second Mortgage Lender
- I recommend you carefully check your financial situation and make sure that you choose the loan that is most appropriate to your financial situation. Make sure that the lender explains to you all of the terms of the loan, including:
- Interest rate: fixed or variable
- Mortgage fees: lender fees, 3rd party fees, and escrow or prepaid fees.
- Repayment terms: length, payment schedule
- Prepayment terms: Including lump sums or accelerated payments. Find a loan with no penalties.
Remember, when you are taking a second mortgage, you are taking a secured loan and placing your home at direct risk in the case of default. If you are having debt problems, then look for a debt relief option. Beware of bad credit second mortgage lenders. Those are expensive and high-risk loans and most often do not solve your problems.
Just like any mortgage loan, when looking for a second mortgage, Shop Around. You can find the best terms by making sure you have a high credit score, good credit history, and a low debt to income ratio.
Since most second mortgages are for small sums, many lenders do not offer HELs to borrowers who are not current lenders. You can do your shopping for a second mortgage lender by:
- Speaking to your current lender
- Searching online with the major banks, such as Wells Fargo, Bank of America, Chase, or CitiBank
- Using online search engines.
- Dealing with a mortgage broker.