Will a Second Mortgage Hurt My Credit?
A poor credit score is a huge hindrance that can deny you access to loans from various financial institutions. Most banks and private lenders also use credit to determine the interest rates for different borrowers. If you are wondering whether taking a second mortgage will hurt your credit, then the simple answer is No. Keep reading to learn more. Call us today for a consultation.
How Do Second Mortgages Work?
Second mortgage loans are secondary loans offered by lenders, banks, or credit unions on top of the primary mortgage. Like the first mortgages, these loans use your property, particularly the equity you have accumulated as collateral. Most lenders calculate the equity in your home based on 80% of the current home value after appraisal.
How’s Credit Score Calculated?
If you are concerned about whether or not a second mortgage will hurt your credit score, perhaps it’s necessary first to understand what a credit score is and how it’s calculated. A credit score measures your creditworthiness ranked from 300-850. The higher your credit score, the better the odds of accessing different loan products from various lenders at reasonable rates.
Some of the aspects lenders use when determining your credit score include your loan payment history, length of credit history, the total amount owed, types of credit, and whether you have an active/recent credit.
What Hurts Your Credit Score?
By default, taking a second mortgage won’t hurt your credit score. In fact, if you borrow a second mortgage and stick with the payment terms and conditions, it will boost your credit score in the long run. Some of the things that can hurt your credit score include:
- Making late payments.
- Closing your old credit card account.
- Applying for extra credit at once.
- Having a high debt to credit-utilization ratio.
- Facing legal judgments (this doesn’t appear on the credit report, but some lenders can quickly check through public records).
- Failing to correct critical errors in your credit report.
Is a Second Mortgage Worth it?
Definitely Yes! If you have a good plan for spending your second mortgage, it’s definitely worth taking it. Typically, second mortgages are used to consolidate debts, finance home improvements, invest in new properties, and even pay for education or hospital bills.
Always compare the rates of the various banks and lenders to ensure you get the best deal possible. If your bank or lender doesn’t offer competitive second mortgage rates, you can always try a different bank or lender. Consider negotiating better rates with your new lender, especially when taking home equity or cash refinance loans.
Make it Count Today!
Before taking a second mortgage loan, you want to understand its implications on your monthly payments and overall financial standing. Get in touch with us, and we’d love to help you make the most of your second mortgage loan.