What is a Second Mortgage Anyway?
If you need a low-interest loan and your options are limited, you’ll always want to consider a second mortgage. Since these loans are asset-backed, most banks, credit unions, and even private lenders offer second mortgages at reasonable rates. Before we look at some of the main reasons for applying for a second mortgage, let’s first discuss what a second mortgage is and how it works. Call us today to learn more.
Understanding Second Mortgages
There are two definitions for a second mortgage. One and the most popular is a mortgage that’s taken on an existing property, i.e., in which you are still paying the first mortgage. Ideally, this mortgage sits on top of the first or primary mortgage. The second definition is a mortgage you take on your second home. Throughout this post, we’ll focus on the former definition of a second mortgage.
How Do Second Mortgages Work?
Since second mortgages are taken on existing properties with outstanding primary mortgages, you’ll be required to make independent monthly payments for both the primary and secondary mortgages. Depending on the rates they offer and your personal preferences, you can borrow the second mortgage from your first lender or from a different lender.
Second mortgages often have their own terms, rates, and rules. For instance, their rates tend to be higher since the lender assumes more risks. The reasons for the increased risks come with the fact that you already have a primary mortgage that you must service. Similarly, the primary mortgage must first be paid in full before repaying the second mortgage, i.e., in case of foreclosure.
The loan amount you’ll qualify for, the rates, and the terms will largely depend on your home equity, the home’s value, and your credit score. Different lenders will also have varying rates and terms, so conducting thorough research is advisable.
Why Go for a Second Mortgage
Most homeowners go for a second mortgage when they need a low-interest loan to settle large bills and debts. Since you are using your home equity to secure the loan, the rates are significantly lower compared to non-secured loans. Here are some of the many reasons homeowners go for a second mortgage:
- Debt consolidation. If you have some high-interest loans from one or different lenders/credit unions, you can use a second mortgage to pay off all of them and only have one low-interest loan to worry about.
- Home repairs and renovations. A second mortgage will be a great alternative if you don’t have enough money to cover emergency repairs and renovations.
- Working capital. If you need quick cash to fund your business idea, expand your current business or invest somewhere, a second mortgage would work best.
- Avoid high breakage fees. Instead of paying a high penalty to break a locked first mortgage to access funds, it’s cheaper to secure a one or two-year second mortgage. You can use the funds as you wait for the first mortgage to mature.
Choose the Right Lender
Second mortgages are a great financing tool for homeowners looking for flexibility and convenience. The mortgage bears low-interests, and you can always compare rates from different lenders to ensure you get the best deal possible. Choose the right lender today or talk to a loan professional who will guide you throughout the second mortgage process. Call BMC Mortgage and Investments today to discuss your options!