Shortening the length of a home mortgage loan is every home owners dream. This is usually done by refinancing their mortgage. However, even if the rate that is offered is low, and the payment period is shortened; the monthly payments would be higher. The benefit of this solution is the best feeling there is for any home owner out there. A good example is briefly explained below.

Lets take a well off family for this situation. They make a decent sum of money annually. Lets say they make a purchase for a new home. They had an ARM at a rate of 8% for a fixed period of 30 years. Now they replace this with a fixed rate home mortgage loan at 7% for a period of 15 years. This resulted in a spike in their monthly payment bill, it increased by $190, however, they will finish their mortgage payments much faster. The other benefit is the amount of interest paid on the mortgage. For the 15 year term, the interest will total about $100,000, while on the ARM term, it will total around $220,000. Just look at this difference, and see how much this family can save in the long run. This way, this family can take out equity from their home.

Some families can’t afford the high spike in mortgage payments, so they might not be able to decrease their loan period by 15 years. If you are in a situation like this, the best solution is to ask your financial advisor or mortgage broker to help you customize a deal for you. If you are not able to drop down to a 15 year mortgage, try getting a 20 year, or 25 year term mortgage. They will all help you out in paying off the mortgage quicker and by reducing your time period.

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Many home owners apply for a second mortgage when they are in need. A second mortgage is smart way to deal everything. You should only go with a second mortgage, if you need a fairly large chump of money. Also, your first mortgage would be paid off before your second mortgage. Due to this, it is considered to be riskier, and it comes with a higher interest. For many people, the reason for getting a second mortgage is usually because they need money for home renovations or they might have debt. You must remember, if you fail to make payments, you are putting your home on the line. This is just like a home equity loan, they both put your home on the line. It’s a major risk.

The Interest Rates & Fee’s That Come With A Second Mortgage

Ideally, a second mortgage comes with a higher interest rate because if you were to default on the payments, this second mortgage will not get any payments from the home’s initial value. Not only does this make it risky for a borrower, but also for the lender. When you apply for a second mortgage, you will have much higher fee’s than usual. This sometimes discourages people from getting the mortgage, due to the high fee’s and expectations that are required. To help you out, we have setup some tips on how to shop around and select a good second mortgage.

1. Shop around everywhere you know and ask around to other home owners. When contacting these loan lenders, you will be getting different interest rates. At the same time as looking for a lower interest rate, make sure to ask about second mortgage application fee’s. It might so happen, that the interest rate is merely nothing and the application fee’s just blow your mind!

2. Some mortgages have penalties that are fairly high. Try as much to avoid these. The penalties can for something like defaulting on payments. Although most home owners will try as much to make their payments, anything can happen at the last minute. So, you don’t want to end up paying a huge sum of money towards your fee’s, when that money can be used to pay your monthly mortgage payment.

3. When looking at different packages, make sure to look into all the details and understand the package thoroughly. Some lenders may offer a great interest rate and low application fee’s but maybe near the end of your payment schedule, you will be billed with huge payments. Make sure you understand all the terms before signing any documentation. Many people fall into traps by not doing this very easy step! If you have any difficulty with understanding your contract, hire your lawyer.

4. Pay attention to “Other Fee’s” which may be for things like appraisals, application cost and points. All these can increase your total spending for your second mortgage loan. So, keep all this information in the back of your head and ask questions if you do not understand something.

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So you must be wondering what exactly are closing cost? Closing cost are the fee’s the lender gets from the start of your mortgage loan. The fee’s are related to both your home and the application. In some special cases, the lender would be willing to pay them for you. In most cases, you, the borrower will be charged to these fee’s. The cost is in between 3% and 6% of the total value of the mortgage loan obtained. However, this can change with different situations and tax regulations. These are the things that are included in a typical closing cost outline.

Items: Mortgage loan application fee’s, credit report fee’s, mortgage insurance fee’s, title search fee’s property appraisal, inspection & survey fee’s, lender’s attorney fees, recording & transfer fee’s, home owner attorney fee’s and more.

For some cases, the process would require you to have an Escrow account for paying certain fee’s, its best ask your real estate broker for information on this topic. Once you meet with your financial advisor, mortgage broker or any other professional you should have a good faith estimate (GFE) of what your total closing cost should be. This information will be provided to you within the first three days of the mortgage loan application. If you are lucky enough, you would be able to deal out a plan with your financial advisor and cut down on some closing cost. Although, some cost may stay for all loans, like the credit report fee. If you feel, the lender is charging a little too high, tell them and negotiate your way through. You must also understand that some fee’s have already been drawn out between your lender and a third party, so this can’t be changed. You might of heard of ‘junk fee’s’, these are unwanted fee’s, which are there for no reason. Try to lower the fee, or even eliminate it before processing the whole application. You may use our closing cost calculator for your home mortgage loan closing cost prediction.

This is the last part on home equity loans. In this article we will be discussing about the advantages and disadvantages of acquiring a home equity loan. First, lets talk about the advantages a home equity loans brings you, and comes with. Now, a lower interest and rate and tax deductions are always the best advantage when comparing home equity loans and types of debt. The other advantage is that since you are putting up your home as collateral, it places less risk on the lender. Now, no matter what type of home equity loan you take, the immediate $100,000 you borrow in tax deductible. Other non-secured loans and credit cards do not come with this amazing feature. IE: Lets say you end up paying $10,000 in interest towards your home equity loan, at the end of the year you will reduce your taxable income by $10,000. This ratio will change, depending on what you use your home equity loan for. If the purpose of the home equity loan was to renovate or by a new home, this means you will have the benefit to deduct the interest paid on the first $1,000,000. This is due to the fact that these types of loans are recognized as a first mortgage, and are taken as tax purposes. However, your tax advisor will be much of a bigger help when answering questions pertaining to your situation.

The major disadvantage is that your home is on the border line, you may lose your home in the case you default on the payments. When you get a home equity loan, you are reducing your ownership ratio towards your home. There are also fee’s which you pay when getting a home equity loan, these are similar to those you paid when you bought your home.