Mortgage Articles

Getting a second mortgage or a home equity loan involves similar costs as in case of the first mortgage. So you should look out for a loan program offering suitable rates and terms so that you can pay for both the mortgages simultaneously. But while going for a home equity loan, just watch out for some common mistakes that may lead to complex situations in your loan transaction. Being alert on such mistakes will help you to avail a cost effective loan program that can serve your purpose as well as help you to repay the existing mortgage according to a predefined plan.

• No knowledge of pre-payment penalty clause
  There is often a pre-payment penalty clause involved in no-cost home equity loans. It is better to avoid such programs in case you plan to sell your home or refinance the first mortgage within three to five years of taking the home equity loan.
• Getting a large amount of credit line
  Borrowers often get a large credit line and fail to qualify for other loans. This is because lenders calculate your payments based on the credit available and not the amount used. Even when you have zero balance on your equity line, getting a large equity line indicates huge payments, which makes it difficult to qualify for such loans.
• Not knowing how home equity loan and home equity line of credit differ
  Borrowers are often not aware of the difference between home equity loan and home equity line of credit. A home equity loan allows you to get a certain amount in a single payment. But with a home equity line of credit, you can avail cash advances for the amounts you require. It is best to use a home equity loan when a borrower requires cash up front for home improvements, debt consolidation, etc. But if you require funds for periodic needs such as children's tuition fee etc, it is better to apply for equity line of credit. Therefore, a basic knowledge of both loans can help you choose the one you prefer.
• Not knowing the life cap of the home equity loan
  Many people seeking home equity loans are unaware of lifecap which extends to 18%. So you need to plan out as to how you should pay off the loan at a higher interest rate.
• Not shopping around for the best loan
  Consumers seldom shop around for the loan programs that can offer some benefits as well as allow them to save from lower rates. They borrow such loans from the banks with which they have their checking account. The bank may offer suitable loan programs but it is better check out with different lenders.