Have you put travel, renovation, education or investment plans on hold due to a money crunch? Would some extra cash right now help with your next project? Then maybe it’s time to consider taking out a second mortgage.
A second mortgage is when you use your home equity [the difference between the market value of your home and the mortgage balance] as collateral to obtain a significant amount which you will pay off at an interest rate higher than the one on your first mortgage. As your first mortgage lender has priority over the second mortgage lender in the event of foreclosure, the latter charges a high mortgage interest rate for your second mortgage.
There isn’t any need to be skeptical when it comes to taking a second mortgage on your home. If you have been consistent with your monthly mortgage payment, your mortgage consultant will let you know that you have a good chance of securing a second mortgage. This is because as you have been regularly paying off your first mortgage payments, the loan balance decreases which in turn increases the percentage of home equity.
There are multiple reasons why a second mortgage may be the most feasible option for you. These include: Renovations and home improvements, Consolidation of Debt and miscellaneous reasons.
A second mortgage provides you with a significant amount of money for when you want to purchase a new vehicle, carry out a new project, help your child finance a higher education, avoid private mortgage insurance or any other reason that’s important to you. Having two mortgages could actually work for you.
A second mortgage has comparatively easier qualifications than a first mortgage. Your mortgage broker will require you to submit certain updated documents, provide proof of a consistent employment background and of course, having a good credit score always helps.
Once you have decided to take on a second mortgage, speaking with a mortgage advisor is a good idea. In case of the second mortgage, the interest rate will be higher as it’s riskier for the lender, as will the amount loaned be lower in comparison to the first mortgage. The more home equity you hold, the better financing options you’ll have.