What Affects Second Mortgage Rates?
Many factors have the possibility of influencing second mortgage interest rates. When thinking about getting a second mortgage, it’s important to find the lowest rate possible, so that makes it worth while to understand some of the common factors that can affect second mortgage rates.
Special Promotions
It is a very common practice for lenders to run special promotions that provide lower than normal interest rates for a short period of time. This is called the “introductory rate”. For instance, during the first six months of a new mortgage, the introductory rate might be 2% lower than the going rate. When looking at a promotional rate, be sure to understand two things: the date that the introductory rate expires, and what the payments will be on the new increased rate, after the promotional period expires.
Type of Loan
There are many types of second mortgages, and the structure of each loan will have a definite effect on its interest rate. For example, a 3/1 adjustable rate second mortgage will have a different interest rate then a 30 year fixed-rate mortgage. Therefore, as you compare interest rates on different quotes, be sure to compare loans of the same type only with each other.
Lender Policies
Each bank will have a different profit margin that they needed to realize on each loan that they make. That is why you will see rate variations when receiving quotes from different lenders. Because of their differing policies, it is very important to receive quotes from as many different lenders as possible in order to maximize your chances of obtaining the lowest interest rate.
Market Forces
The Federal Reserve determines a prime interest rate that affects all of the other interest rates in the market. The prime rate heavily influences the interest rate of second mortgages. Other market forces also shape second mortgage rates. For example in good economic times the market usually drives interest rates up. But in bad economic times, rates usually go down. This is not only true of a refinance second mortgage, but also for all kinds of mortgages in the market.
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