Comparing Second Mortgage Loans

There are several different kinds of second mortgage home loans, the two most common types being the fixed-rate loan – in which your loan proceeds are handed to you in one lump sum – and the equity line of credit, which allows you to draw upon your loan amount like a credit card, using only what you need at any one time and only paying interest on the amount you actually use.

Different lenders have different underwriting requirements and can charge different fees and different rates of interest. It is to your financial advantage to find the best deal you can – but comparing one loan to another is not always easy. However, there are things to keep in mind which may make your comparisons more accurate.

First, keep in mind that interest rates change daily, and can change several times during a day, depending on what’s happening in the credit markets. For this reason you must get your quotes to compare at approximately the same time on the same day.

If possible, ask your lender to give you a “lock quote.” A lock quote is a quote that will won’t change for a certain amount of time; 10 days to 30 days are common lock periods. The longer the lock period the higher the interest rate that you will be quoted. Only compare lock periods of equal length when you are comparing rates from one lender to another.

Ask your lender to quote “points” separately from the rate. A point is one percentage point of the amount of the loan. When you pay points you are actually pre-paying interest on your loan. By paying more points up-front you can reduce your interest rate. Therefore, it is important that when you compare interest rates you also compare the number of points you will be charged in order to get that rate.

Keep in mind, too, that the rate you are quoted on a loan is not necessarily the rate that you will actually be offered once your credit score is run. Generally the rate quoted is the rate offered to prime borrowers – in other words, borrowers with excellent credit. If your credit is less-than-excellent you may have to pay a higher rate of interest when your final loan papers are originated.

Comparing rates is not easy. Compare rates on the same day, as close to the same time of day as possible, and be sure to compare points at the same time that you compare interest rates.