Variable Rate vs. Fixed Rate 2nd Mortgages

Couple sitting on the floor after painting using funds from fixed rate second mortgage.When people go out shopping for a second mortgage they typically look at either a variable rate home equity line of credit or a fixed rate second mortgage. With a home equity line you may get the benefits of only paying interest on the amount you owe each month and introductory rates that can be very appealing when the corresponding index is nice and low. The downside is that when the index goes up, so does your rate and your monthly payment. Many consumers feel more comfortable with the security that a fixed rate 2nd mortgage provides. Fixed rate second mortgage loan products come in all shapes and sizes. These products range anywhere from a 5 year balloon program up to a thirty year fixed rate second. Rates, programs, and terms will vary by lender.

Potential Fixed Rate Second Mortgage Benefits and Guideline Information

  • Security of a fixed 2nd mortgage interest rate. Allows borrowers to budget accordingly.
  • Piggyback loans may be used to help avoid PMI (private mortgage insurance).
  • Stand-alone fixed seconds can free up additional cash-flow for investments, home improvement projects and/or other needs.
  • Potential tax advantages (*consult your tax advisor for details).
  • May only be available for certain kids of properties and occupancy types. For instance borrowers may not have to jump through hoops to find a lender offering fixed rate second mortgages on a single family detached home being used as a primary residence. However, if someone is looking for a fixed 2nd mortgage on a investment condotel, they are going to have to do some serious research.
  • Most programs have no prepayment penalties (consult a mortgage professional).
  • Low & no closing cost options are often available.

Where to Find Lenders and Brokers offering These Programs? – Check the rate tables on ForTheBestRate.com

When I started in the mortgage industry around 2000, it was easy to find lenders offering second mortgages up to 100% of a home’s appraised value or sales price. Today, it is considerably more difficult and LTV’s (loan to value’s) tend to cap out at a much lower percentage. You can use the rate tables on ForTheBestRate.com to reach out to some of the most competitive mortgage companies competing in the online space. If you don’t have any success, it may make sense to connect with local lenders, banks, and/or credit unions in your community to see what they have to offer. If they portfolio their second mortgages, they may have more flexibility on the types of properties they’ll allow and how much they will lend.