(LoanSafe.org) – Even with bad credit conditions still roaring, borrowers are still getting qualified to take out a second mortgage. Some homeowners choose to take out a home equity loan for some extra cash, while others are forced to do so based on financial obligations or needed home repairs. Whatever the reason may be, it’s always wise to determine exactly how the loan will be paid off, and some may even consider paying the loan off early. Eliminating your second mortgage faster will allow you to be free of an additional financial burden. There may be several ways to go about doing this.
Tips for Borrowers
1. Check for prepayment penalties. One thing to keep in mind is whether your loan terms include a prepayment penalty or not. Prepayment penalties may seem illogical to many, and in a way they are. If the penalties are included in your loan terms, you probably will be penalized for paying off your loan before a certain time period is up. The effects of prepayment penalties might keep some loan holders restricted to their original payment schedule.
2. Use a mortgage calculator. Mortgage calculators can easily be found online that will help determine potential savings if the loan is paid off early. Several loan calculators can be found here on LoanSafe.org.
3. Examine your financial budget to determine how much you can afford to put towards paying off the loan. Depending on how secure your household income is, it may or may not be smart to use available cash to pay your second mortgage. Financial analysts advise to always try to have at least three months worth of emergency savings in case of an unexpected financial hardship. Second loan debt is usually considered second priority compared to your primary mortgage. You must evaluate if you’ll be able to pay off your primary mortgage if your take care of your second one first.
4. Communicate with your lender when you want to pay over the minimum payment. Even if your terms forbid it, being a loyal customer may help you out and settlements may also be negotiated (in certain situations) if you’ve bit off more than you can handle. Lenders sometimes are willing to forgive a portion of your debt.
5. When paying by check, remember to write “Apply to Principal” on the check and the bill.
6. Reconsolidation through a refinance can be used to pay off both your first and second mortgages. Loan modifications can be used as well as some servicers will agree to fully extinguish a junior lien if the 1st mortgage has been modified under a government program.
7. Sometimes Chapter 13 bankruptcy can eliminate the debt of a second mortgage, if the debt is unsecured and you file a Motion to Remove a voluntary lien (Lam Motion). Second mortgages are the last priority and when the value of your home dips, they are no long secured by the equity in your home.
Once you get to the final payment for your second mortgage, you’ll want to call your lender to request the exact payment amount. When you have that amount which may have changed due to the interest, send the final payment. After this you’ll want to call to close the loan. Additional paperwork may need to be signed, and this financial burden will be out of your life.
For borrowers with a second mortgage, the real question is, does the cost of paying off your 2nd mortgage early make financial sense? Remember there’s a chance your loan terms won’t t allow such action without a penalty.