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First mortgages are obtained out when a home is first purchased, while second mortgages are taken out some time later, when the equity in the house has grown. Therefore, the purpose of the second mortgage is not to finance the purchase of the home.

As a rule, a homeowner will take out a second mortgage for home improvements, but there other reasons to take out a second mortgage, and one of the most increasingly popular ones is to pay down high interest debt.

The only time it really makes sense to take out a second mortgage for home improvement is if the improvement is going to add to the value of the home. There are some projects that are considered more valuable in the eyes of homebuyers, such as extra bedrooms or a remodeled ktchen, that will make them willing to pay more for the home.

If a home improvement you are considering is really nothing more than a luxury, for example a pool, you probably won’t get you money back on it.

Paying off high interest rate debt is probably a better use of lower rate second mortgages, since you will save a lot of money over time. Typically the interest rate on credit cards can be 16 to 20% or more, while a second mortgage can be obtained at 5-9%, representing a significant overall savings to the homeowner.

But be careful to use the loan for its intended reason, and don’t “forget” to pay off those expensive consumer loans.

Second mortgages are exactly that in actuality as well as in name, because they are paid down after the first home loan is paid, and the bank has to hope there is equity to cover it.

This is the reason that rates on second mortgages are higher than on first. The bank holding the second mortgage risks that the proceeds of the home in case of default will not be enough to cover the loan. Since risk is one of the most important determinants of rates, this higher risk raises the rate.

There are closing fees associated with all mortgages, but the closing fees for second mortgages tend to be higher than for first mortgages. Be conscience of all of the costs so that you can compare it to the benefit you plan to receive (the amount of increased home value, or the savings on credit card debt.)

It really pays to shop around for a second mortgage, since the rates can vary a great deal. You should also shop around for the lowest closing costs. Closing costs for a second mortgage are a proportionately greater cost since the loan is typically for a smaller amount than a first mortgage.

When you start shopping for and applying for a home loan, you will find that you will also be inundated with offers of mortgage life and disability insurance. Do not be tricked into thinking that you have to get your mortgage insurance with the company that is handling your mortgage. (An exception is purchase mortgage insurance, the kind the lender insists you to take out to protect them when you have a low down payment.)

Whatever offers you receive regarding life or disability insurance on your mortgage, make sure you read them all and compare each, since the cost and the benefits can vary greatly from one insurer to the next.

Like almost any other product available today, you can also shop for your mortgage insurance online. This is the best way to make sure you are getting the best bang for your buck when it comes to mortgage insurance. There may even be “online specials that are not given in person or through the mail. These kinds of offers are only made over the internet.

They may even supply you with a worksheet you can use to make your own comparisons. Use these to compare all your offers, online and off and you can be sure of getting a birds eye view.

Another point to shop for is how much coverage you can get with each insurer. Be sure you ask about combination policies. Many times, these “combination policies turn out to cheaper per feature.

All this work is necessary once you see how many various policies there are, and the differences in price. This is a long term choice, one you will be paying for over many years.

So dont be lazy and just take the offer that your mortgage provider gives you. Get at least a few quotes to make sure your lender is not completely out of range. If you take the policy without being sure you have the best policy, you will pay for a long while, or lose money if you find a better one and switch. A hidden advantage to shopping around is that you may find features that are important to you that you hadnt considered at first.