How to Deal With a Second Mortgage Secured Loan
A second mortgage is any secured loan (a loan with a home as collateral) that is in the second position on a title report. Traditionally, second mortgages have much smaller balances than first mortgages. These loans are often used for credit consolidation, cash out, and home improvements. Dealing with a second mortgage is simple, once you understand the terms of the loan.
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Instructions
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Review your second mortgage note. This will be in the package of paperwork you received when you closed your loan. This document breaks down the loan term (length), rate, payment, and amortization schedule. This note gives you a comprehensive overview of the costs and terms.
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Calculate your debt-to-income ratio (DIR) with your second mortgage. To find this ratio, divide all of your monthly bill payments by your monthly gross income. A solid DIR is below 40 percent. If your DIR is higher than 50 percent, you will already be struggling with your payments.
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Attempt to eliminate monthly obligations to reduce your DIR. This means paying down and paying off credit cards bills and reducing monthly entertainment, eating out, and shopping expenses. A second mortgage payment likely will not be reduced and you should therefore focus on reducing your discretionary spending and eliminating consumer debt.
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Contact your second mortgage lender if your payments become unwieldily and you are struggling to stay on time. Many mortgage lenders offer hardship programs that might give you a brief (normally six months) window during which your payments will be reduced.
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Consider refinancing if your second mortgage has a high rate of interest (over ten percent) or if you need to consolidate credit cards. There are an inordinate number of mortgage lenders and programs, but the most secure loans are fixed-rate second mortgages. Check your credit (free scores at www.annualcreditreport.com) prior to filling out applications.
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