The Woes of a Second Mortgage with Bad Credit
Getting a second mortgage can be a great way to access the equity you have built up in your home so that you can pay off your high-interest consumer debt. But while it's possible to obtain a second mortgage with bad credit, taking on a new debt doesn't always make the best financial sense. Below are three important things to consider before applying for a second mortgage with bad credit.
Annual Percentage Rate (APR)
Annual interest rates on second mortgages with bad credit tend to be slightly higher than the on first mortgages. This is because second mortgages generally involve more risk for lenders than first mortgages. Be sure you understand how the APR of your second mortgage will impact your financial situation; some loans have a very high interest rate, which may defeat the purpose of obtaining the financing in the first place. A mortgage broker can save you a great deal of time by shopping around for you and comparing rates on a second mortgage with bad credit.
Once you've been approved for a second mortgage with bad credit, your mortgage broker should be able to provide you with a list of all closing costs and borrowing fees, if there are any. This way, you can create a budget that includes the repayment installments on the second mortgage.
Most lenders have default penalties, but there are a few that have nominal ones or even none at all. If you think you're likely to be late on payments, ask your mortgage broker to refer you to a lender that has low- to no penalties.
Before applying for a second mortgage, it's important to consider whether or not you can truly afford it. We can help you assess your current financial situation and advise you as to whether a second mortgage with bad credit would be the right choice for you. Contact us today at our Edmonton office for a free, no obligation consultation.