You will read in this article about the second mortgage loan and:
- Rules cautions, advice and timing
- How to consider a second mortgage, and reasons as to why one should consider a second mortgage.
- Describe the types of second mortgage present to inform you better in this decision.
- A few examples are presented for the reasons to take a second mortgage.
- Short advisory section to consider even considering a second mortgage or not.
We are available if you have any questions or concerns.
What is a second mortgage, and how does it work?
The cost to buy a home in has increased significantly, therefore some homeowners have found themselves in the position of some equity. One of the uses for this equity is by taking a second mortgage, which is a loan that uses the equity in your home as collateral. Common examples include a home equity loan and a home equity line of credit (HELOC).
These types of loans are called second mortgages. They follow your first mortgage—the one you obtained to purchase the home. And like your first mortgage, a second mortgage is secured by a lien on your property, meaning if you don’t make payments or fail to repay the loan, you could face foreclosure.
What is a second mortgage?
You borrow from the equity you’ve built up in a property. Homeowners typically access equity by taking a home equity loan or a home equity line of credit (HELOC.) mortgage services
Inner workings of a second mortgage
To obtain a second mortgage, you need to do the same things you do to qualify for a first mortgage. The process includes submitting an application to a lender and providing documentation regarding your income, debts, etc….
Equity requirements vary, but many lenders prefer that you have at least 15 per cent to 20 per cent equity in your home. You can typically borrow up to 85 per cent of your home’s value.
Types of second mortgages
People who take out second mortgages usually choose between home equity loans or home equity lines of credit.
The bottom line: A home equity loan comes with relatively low-interest rates and a fixed monthly payment. You receive all of the money upfronts and pay it back, with interest.
Common uses for a second mortgage
Some common uses of second mortgages:
- College education
- Consolidation of higher-interest debt
- Medical bills
- Home improvements
Some borrowers use second mortgages to buy an investment property.
Should I get a second mortgage?
Before considering a second mortgage, consider the risks. The best reason to get a second mortgage is to use the money to increase the value of your property.
Using the money from a second mortgage to improve your home’s value can maintain the equity you have in your home. Plus, if you use a second mortgage to buy, build or substantially improve the home you use to secure the loan.
If you’re thinking about getting a second mortgage to buy a car, pay for a vacation or purchase other luxuries, you should reconsider. The equity in your home is one of your most important assets.