Tips for Getting a Second Mortgage in Maryland

When searching for a second mortgage, you’ll essentially have two product types to choose from: fixed rate, fixed term loans or Home Equity Lines of Credit (HELOCs). Fixed rate mortgages are usually between five and twenty years, and your monthly payment will never change. HELOCs are adjustable rate loans with rates pegged to the prime rate. These move at the same time and amount as any changes the Federal Reserve makes to overnight Federal Funds Rates. Let’s dive deeper into each option…

Fixed Rate, Fixed Term Loans:

Fixed rate, fixed term loans are pretty straight forward. You can compare rates and costs to know which option is best. In many cases, second mortgage lenders will pay your closing costs as long as you don’t pay the loan off within three years. Typically, the shorter the loan term (say ten years instead of twenty), the lower the interest rate. However, the shorter the term, the higher the payment. It is important not to choose a payment that is too high for your budget just because you are intrigued by the lower interest rate.

Home Equity Line of Credit:

HELOC’s come in many different forms. Be sure to take all the differences into account before choosing your HELOC lender. Mechanically, all are very similar to a credit card and have these features:

• They have a high credit limit and you can borrow any amount between zero and that limit.
• You’ll have an initial draw period (usually between five and fifteen years). During this period you can access any amount you want up to the limit. There is no need to borrow it all at once, just when you need it.
• Once the draw period ends, you’ll enter a repayment period during which you can no longer access funds above your balance, and you’ll be put on a schedule to payoff that balance over a specific period of time (usually between five and fifteen years).
• Funds are typically accessed via check or a specific credit card tied to the HELOC.
• Your monthly payment will be determined by your ongoing outstanding balance.

Where HELOC terms differ per lender:

• The length of the initial draw period and the repayment period.
• Repayment terms during the draw period can be interest only or a percentage of the balance.
• The interest rate: some can be below the Prime Rate, but others can be above. Some lenders will allow you to fix the rate on all or a portion of your balance.
• Some will have an introduction period with a reduced rate.
• Most lenders will pay your closing costs. Some will recapture those costs or have some other prepayment penalty if you pay off the line AND close it out within three years.

To help consumers compare options between different HELOC lenders, Apex Home Loans has prepared a questionnaire to help you determine which option is best: Download Questionnaire.

If you would like to review your completed questionnaire with an experienced and friendly loan officer from Apex Home Loans, please, contact us.