How a Second Mortgage Can Help You
A second mortgage should be thought of as a tool that can help you get where you want in life. Second mortgages can help you to pay down debts, purchase an investment property, renovate your home, and more. A second mortgage is a loan that is backed by the equity that you already have on your home. Tapping into the source of funding is smart because it usually comes with a very low interest rate.
Types of Second Mortgages
The two types of second mortgages are a Home Equity Line of Credit (HELOC) and a home equity loan. The HELOC allows you to take a variable amount of the equity that you have in your home out for the thing that you need. A home equity loan gives you a lump sum of money that you are expected to pay back over time.
People often like the HELOC option when they are doing renovations. Renovations can be hard to price out ahead of time because the amounts or types of materials might change, or the contractor might change their charges after the work is finished. A HELOC loan allows you the flexibility to take the amount that you need when you need it. You can pay it off and keep the line of credit open like a credit card if it fits what you need to do.
Why Use Second Mortgages?
The two main reasons that people take out second mortgages are to complete home renovations or pay down debt. Another less common reason that people take out second mortgages is to use it a down payment on a second property or investment property.
Using a second mortgage to consolidate your debt is an excellent use of this tool. A second mortgage will allow you to streamline your payments. You will have all of your payments going to one place at one time, leaving less of a risk that you miss a payment or can't afford to make one payment or the other over the course of a month. A second mortgage will also have a much lower interest rate than student loans, credit cards, and even an auto loan, making it the more affordable option over the long run for most people.
People using a second mortgage to pay down debt may have poor credit. If you have poor credit, you may not qualify for more of the traditional second mortgages, but there are other options, such as private loans, that you can talk to your mortgage broker about if your credit is poor.
How Much Can You Borrow?
Once you have more than 20% of the principal on your first mortgage paid down, most banks will let you borrow equity from there. Most banks will allow you to borrow up to 80% of the value of your home. That means that on a $250,000 home, you can borrow on the equity that you have in the house over $50,000. If you have $70,000 in equity, you can borrow $20,000 in a home equity loan or as a line of credit through a HELOC.
Give Us a Call
Now that you understand a bit more about how useful a second mortgage can be. Find out more by contacting us today. We know all about home loans for people with good and bad credit. We can help you pay down debt, renovate your home, or even buy a second home.