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Getting a second mortgage on a home is a very personal matter. There are many different factors that go into the decision but it doesn’t have to be as complicated as it may sound. There are a few, simple things to remember when looking into that second mortgage.

A second mortgage implies that you already have a first one. After living in your home for several years, the home builds up value. This is also called equity. Having equity then allows you to borrow against that. This is what is also called a second mortgage. There are some risks involved with taking out a second mortgage, but if you are careful and pay attention to the details, there won’t be much harm.

One thing to consider is to not exceed 80% of the value of your home. Most lenders these days will allow you to borrow up to 130% of your home. If you have a plan to repay that loan, there aren’t any problems. But please consider that if you default on your loan, the bank will take your home and sell it to pay off the first mortgage. Anything left over will be applied to the second mortgage. If you have borrow up to 130% of your home’s value, the money the bank makes by selling your home will not be enough to cover the second mortgage. For this reason, most banks recommend you only borrow up to 80% of the value of your home.

Another important thing to remember is that most banks will have higher interests rates on the second mortgage than the first. Don’t be afraid to shop around and check out all of your options at different banks, credit unions and other financial institutions. Pay close attention to the annual percentage rate (APR) when comparing different offers.

Look at whether or not the loan has fixed-rates or adjustable-rates. If your loan is a fixed-rate loan, the rates will never change. These are set at the beginning of the loan and will be carried out through the life of loan. If you have an adjustable rate mortgage (ARM), the lender has the right to change the rates, sometimes increasing them and sometimes decreasing them. Just make sure that you know all the terms of an ARM, if there are limits to the increases, etc. before choosing this option.

Also pay attention to terms of payment. Most mortgages have monthly payments over a range of 20-30 years. When it comes to second mortgages, most terms of payment are 15 years or less. Others may ask for a balloon payment, where you would pay only interest on the loan monthly and then be required to repay the principal in one lump sum at the end of the term.

Second mortgages have many great advantages and can be used for many purposes. As long as you are paying attention to details and understanding everything, it could be ideal for you. And as if with most financial situations, make sure that you ask questions when you do not understand.

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