Watch Related Videos
comments
Taking out a second mortgage is something that you should think about carefully. Below are some of the drawbacks of getting this type of loan.
A second home loan will definitely have a higher interest rate. This is brought about by the fact that banks and other lending institutions face a higher risk that the borrower will not be able to repay a second home loan, as the first mortgage is not yet fully paid.
2. Higher Borrowing Costs
There are more expenses involved when taking out a second home loan. Some of the additional costs include appraisal fees, application costs, home inspection fees, homeowner’s mortgage and home insurance, surveying costs and loan origination expenses.
3. Higher Risk of Losing Home
Before you get a second mortgage, you have to realize that the collateral for this kind of loan is the house itself. If you default on a second home loan, there is a bigger chance that you will lose your home.
4. Higher Prepayment Penalties
Most second mortgages have higher prepayment penalties. Before you take out this type of loan, it is very important to determine if the lender will charge you additional fees should you decide to fully repay your loan early.
