Just thinking about getting a second mortgage can be very intimidating. Maybe you’re unsure about whether getting a second mortgage can really help you. Understanding what it is and what it can do for you should allay your worries and make for a smoother application process. That’s why we wrote this article!
Second Mortgage Definition
A second mortgage is defined as a type of loan that is secured against the value of your home, just like your primary mortgage. However, it is called a second mortgage because it only gets second priority with your initial mortgage getting top priority. Homeowners can borrow as much as 90% of their home equity with a second mortgage.
If you’re contemplating applying for a second mortgage, the most likely reasons are to finance education or spend for a home renovation. If not these, perhaps you are in the middle of your mortgage term and want to avoid fees related to refinancing or breaking your current mortgage. Or, you’re thinking of using your home equity for debt consolidation.
Given the above common reasons on why people apply for a second mortgage, it is easy to see why getting a second mortgage is gaining popularity.
Risks of a Second Mortgage
Second mortgages carry risks just like any other type of home loan. Lenders also view second mortgages as a riskier type of loan for them because money is lent to a borrower who already has an existing home loan. This is why more and more people are getting their second mortgage from private mortgage lenders because banks tend to be very strict to mitigate possible risks.
Interest rates are higher for second mortgages because lenders need to cover their own risks as well as insurance for lending to borrowers who have a higher risk of defaulting. The same goes for fees and penalties which is why reading the fine print and making sure that you understand all the terms is of utmost importance before signing a second mortgage.
Is It Worth it to Get a Second Mortgage?
Second mortgages spell convenience although some may view them as a bit expensive. Homeowners who have a lot of home equity can usually negotiate for better terms. If the funds are used in a smart way, such as for debt consolidation, you can save a lot of money after all the fees are considered.
The people who benefit the most from getting a second mortgage are those with a plan to pay it off as soon as possible and only using it for temporary financial relief. Note that the benefits you can gain from applying for a second mortgage are dependent on the terms that you can get, especially with the help of mortgage professionals.
Are you looking for insightful information on getting a second mortgage and understanding what it can do for you? Contact us and we’ll be happy to talk! Our team of mortgage professionals will discuss with you what you need to know to ensure that you’re getting the best mortgage help possible.