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Common Factors that Affect Second Mortgage Interest Rates


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TERMINOLOGY

There are many things that can potentially affect second mortgage interest rates. If you are considering getting a second mortgage, you want to try to find the loan that has the lowest interest rate possible. Here are some common factors that can affect second mortgage interest rates.

Market

One of the most important factors that affect second mortgage interest rates is the market. The interest rates that are in the market are going to heavily influence the quotes that you get for interest rates. The Federal Reserve sets a prime interest rate that influences all of the interest rates in the market. If the economy is doing well, the market interest rate will go up. If the economy is struggling, the market interest rate will go down significantly. This is true of all types of mortgages in the marketplace; thus, it will still apply for second mortgages.

Individual Bank Policy

Second mortgage interest rates are also significantly affected by the individual policies of the lenders. Each lender is going to have a certain profit margin that they need on each loan. Because of this, you will notice variations in the rates that you are quoted from one lender to the next. This makes it important that you shop around among multiple lenders when looking for a second mortgage. Just because you get a quote from one lender, that does not mean that you should not go to another lender and also get a quote.

Promotions

Sometimes lenders will run promotions that will provide lower interest rates the normal. In some cases, you might get a promotional interest rate for a certain period of time on your mortgage. For example, for the first six months of the mortgage, the interest rate might be two points lower than it would be normally. If you are dealing with a promotional rate, make sure that you understand when the promotion ends and how much your rate is going to increase.

Loan Structure

Something else that can significantly affect interest rates on second mortgages is the structure of the loan. Each different type of loan is going to have a certain interest rate that is available. For example, the interest rate on a 30-year fixed-rate mortgage is going to be different than on a 3/1 ARM (adjustable-rate mortgage). Therefore, when you are comparing interest rates, you want to make sure that you are comparing apples to apples when it comes to loan terms.

Credit History

In addition to outside factors, your credit history is going to greatly affect the interest rate that you are quoted for a second mortgage. The lender is going to take a good look at your credit file and determine if you have been a good borrower up until this point. If you have a good credit history and a high credit score, the lender will be willing to provide you with a lower interest rate. However, if your credit score is low and you have some question marks on your credit history, the lender will offer you a higher interest rate.