Applying for a second mortgage may become necessary if you want to renovate, expand, or finance a purchase. That doesn’t mean that you have to blindly shell out whatever fees and charges a particular lender requests, though. Just as you have choices and options with a primary mortgage, you have the same flexibility here.
Check the Terms
Every lender is different, so do some comparison shopping. Run the figures and figure out which deal is best for your needs, not the needs of the lender. Compare several lenders, and ask them to make a proposal based upon your credit reports and financial situation.
Once you have your offers, sit down and assess the fees, terms, interest rates, and any other relevant data. A lower interest rate on a short loan may not be worth the higher fees, but it can make a big difference on a long-term loan. Pay particular attention to early payment fees, penalties, and other hidden fees.
Pick Your Terms Carefully
If the sub-prime mortgage crisis taught us nothing else, it has made us aware that adjustable rate mortgages can be a real problem if you aren’t careful. Under most circumstances you will get better terms as well as consistency by applying for a fixed-rate loan. With interest rates at historically low levels, there is virtually no reason not to lock in.
Discuss how long it will take to pay the loan, when, and how. Sometimes you can get an additional interest discount if you agree to have your payment taken out of your checking account automatically. Find out what other options you have to reduce your rates.
Negotiate Aggressively, but Politely
While a lender may try to make you feel as if they are doing you a favor by loaning you money, the fact is that you are the one doing the favor. Their income depends upon your interest. Just about everything can be negotiated, from application fees to rates and right on down to postage.
Remember, the contracts are drawn up in such a way as to separate you from as much of your money as possible; your goal is to prevent that from happening. Being able to show other offers you received during your search will provide a good incentive for your loan officer to work harder for your business.
Look for Specials
While it may seem strange to get a special on a loan, they do exist. From reductions in fees to discounts for applying online instead of in person, there is almost always a way to reduce how much you spend for your second mortgage application and process.
The Hidden Savings
One of the advantages to taking a second mortgage instead of a line of credit or racking up debt on credit cards is being able to deduct your application expenses and interest payments from your income taxes. While this is certainly not a good reason to incur more debt, it can alleviate some of the stress involved in taking out a second mortgage.
With good negotiation, proper arrangements, and an eye to the additional benefits of taking a loan instead of accumulating bad debt, you can save money in various ways.
This is another piece from the How to Save Money on Everything ebook. Check out your free copy by signing up for the frugal email newsletter here.