What to Know about Second Mortgages
Second mortgages, as the name suggests, are second loans you take on top of a first or primary mortgage. You can choose to take your second mortgage from your original lender or a different lender with better rates. People often take second mortgages when they need a lump sum of money to satisfy their urgent needs. Call us today to see how a second mortgage can work for you.
Lenders who give out second mortgages take a higher risk. In case you default, the primary mortgage is prioritized, meaning the secondary lender will get paid last. That way, they charge higher interest rates compared to the primary lender.
You can use the second mortgage to pay off your high-interest loans, such as credit card loans for home renovations, medical expenses, child education, etc. There isn’t a restriction on how you’ll use the money. But you always want to put that money into good use. This is because you risk failing to repay both the first and the second mortgages.
Types of Second Mortgages and How They Work
There are two types of second mortgage loans: a home equity loan and a home equity line of credit (HELOC). The latter is similar to getting your consumer line of credit, except that you are borrowing a certain amount against your home equity. Home equity is the difference between what your home is currently worth and what you owe on your mortgage.
A home equity loan gives you the option to borrow up to 80% of your current home’s value, less the amount you owe on your first mortgage. Unlike HELOC, a home equity loan gives you access to the total amount you qualify for while using your home as collateral.
Things to Consider Before Going for a Second Mortgage
Before going for a second mortgage, it’s worth considering the high and fixed interest rates and future uncertainties such as income/job loss. You can minimize these risks by thinking long-term and considering the three factors below:
- Your ability to repay the loan – if you don’t have a steady paycheck and do not have a solid repayment strategy that acts as a contingency plan, a second mortgage may not be your ideal option.
- An alternative source of funds – explore all the alternative sources of funds before going for a second mortgage. Depending on how you plan to spend the money, you can choose to liquidate other assets or delay the project until you have raised the amount.
- Seek professional Help – Once you’ve decided to take a second mortgage, it’s best to involve a licensed mortgage professional or broker to help you find great deals and speed up the entire process.
Get Your Second Mortgage Today
If you need quick cash and have decided to take a second mortgage, you are not alone. Provided you have explored all your options and are comfortable with all the implications, taking a second mortgage isn’t as risky as it may sound.
However, navigating the flooded markets searching for the best interest rates can be overwhelming. Whether you are looking for the best secondary lenders in the market or want to learn more about second mortgages, we are ready to help. Get in touch with us today, and we’ll be glad to be of help.