10 Big second mortgage mistakes to stay away from

Getting and managing a second mortgage may not sound tough if you've already taken out a loan against your home. However, there are loopholes that you should avoid. So, prior to getting a second loan, take a look at the 10 big mistakes that can make things worse for you.

1. Not being aware of Home equity loans and HELOCs

Home equity loans and HELOCs are both second mortgages taken out against your home equity. Home Equity loans can be either fixed or adjustable, while HELOCs are only available as adjustable rate loans. In addition, Home equity loans are one-time loans, while HELOCs are revolving lines of credit.

Moreover, the purposes of these loans are different. For example, a home equity loan is designed to help you consolidate debts or make home improvements, but when it comes to fulfilling your periodic needs, for a HELOC is better. All you need is a basic understanding of both the loans to make them work for you.

2. Taking out a large credit line

Think twice before you take out a large credit line. How much your line of credit is for will be taken into account when you apply for other loan and can possibly get rejected too.

Most often your credit line payments are determined on the basis of your total credit liability even though you have not taken out any money from your line of credit. A large credit line implies large payments that may affect your ability to repay the second mortgage as well as other loans.

I don’t understand mortgage rates…

 If you don’t understand mortgage rates, do not despair.  You are probably just one of many, many people who don’t understand them either and are terrified that their lack of comprehension is going to mean them taking on a mortgage that they simply can’t handle.  The fact is that mortgage rates are relatively easy to understand and you can easily work out which one is the best for you.

Mortgage rates can vary hugely, but it is necessary to understand why.  These rates are what determine how much money you will pay back to the bank on top of the amount you borrowed in the first place.  After all, the bank isn’t going to loan you money out of the goodness of its heart.  No, it wants paying for this service, and mortgage rates are how it gets paid.  Low mortgage rates allow you to pay back more of the capital, or the amount you actually borrowed in the first place and these rates are usually available to people the bank considers low risk, i.e. people with steady jobs who aren’t going to run out of money and not be able to pay the bank each month.

Different Type Of Mortgage Rates

Out purchasing a house, you’ll need to apply for a good mortgage that’s suits your needs and income. It would be best to learn the type of mortgages available in the market and then study them before opting for them.  Most known mortgages in Market are the fixed rate Mortgage and Adjustable Rate Mortgages.
There are other options in the market besides these mortgages which could be of your use if you are having a credit rating problem and are unable to opt for the fixed rate Mortgage or ARMs loans, let’s look at them.

Subprime mortgages

Egregious credit problems, such as a recent foreclosure, will prevent you from getting a mortgage. But lesser credit flaws won’t necessarily stop you from getting a home loan. An industry of subprime mortgage lenders has sprung up to serve the vast constituency of Americans who have credit problems.

Subprime defined

Generally, subprime mortgages are for borrowers with credit scores under 620. Credit scores range from about 300 to 850, with most consumers landing in the 600s and 700s. Someone who is habitually late in paying bills, and especially someone who falls behind on debts by 30, 60 or 90 days or more, will suffer from a plummeting credit score. If it falls below 620, that consumer is in subprime territory.
Few lenders will use the term “subprime” to describe you or your loan because it’s considered bad salesmanship. You might hear the word “non-prime” or, more likely, an adjective won’t be used to describe the mortgage at all