Second Mortgage Rate May Be Attractive When It’s Low

2007-03-08 10:33:40

( Financial )



When second mortgage rates are low, you may be tempted to take out a home equity loan. The compulsion will increase if you want to improve your house or need to consolidate your high-cost debts.

Many lenders will allow (even encourage) you to get a home equity loan when second mortgage rates are favorable. If you have good credit, lenders may give you as much as one-and-a-quarter times the value of your house. Understandably, lenders will not accommodate this mortgage for people with bad credit.

The common type of second mortgage rate is the fixed-rate facility. You have an advantage with this type if you think that, down the road, interest rates are likely to rise. So if you have a low fixed second mortgage rate, you will continue to enjoy the low rate until you pay off the debt.

You may sometimes hear that second mortgage rates are often higher than first mortgage interest rates. This is true if you compare the two rates for the same point in time. But it will not be true if your first mortgage rate is high because you obtained the mortgage at a time when prevailing lending rates were high and compare that rate to your second mortgage rate when current lending rates are low.

If you do take out a home equity loan to take advantage of low second mortgage rates, be sure to keep in mind that the best use for the loan proceeds is in investments that give you higher potential returns, like a promising business, than the cost of the loan.

If you take out the loan for debt consolidation purposes, make sure that you don’t incur any additional debt for that would really upset your monthly budget. Remember that your house is the collateral in any mortgage loan. Failure to pay could mean foreclosure.


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