How Does a Second Mortgage Work?
A second mortgage is an additional loan that a homeowner can take out on their home. The loan can be used freely, but the primary mortgage and secondary mortgage must both be repaid together.
To qualify for a second mortgage, your property must be of a certain value.
How Much Can Be Taken out for a Second Mortgage?
The amount that can be taken out on a second mortgage depends on the value of the property and the amount owing on the existing mortgage. Usually, a homeowner can take out up to 80% of the home value.
Is Taking out a Second Home Mortgage a Good Idea?
Although taking out a second mortgage can result in fast cash, you are also taking on a much greater financial responsibility. However, using a second mortgage to meet financial commitments on time can improve your credit score.
Understanding Rates and Risk
The reason why second mortgage rates are more expensive than primary mortgages has to do with risk. In the case that you cannot pay off either loan, your property will be foreclosed. The sale of your home will then be used to pay off your mortgages, the primary before the second. Because the second mortgage lender is taking on more risk, they can charge higher interest rates. This is also why you must utilize the services of different lenders than that of your first mortgage.
Each homeowner has financial commitments and goals. To find out if a second mortgage is right for you, consult with a broker today.
What Is the Difference Between a Second Mortgage and a Home Equity Loan?
Second mortgages and home equity loans are very similar, as they allow the homeowner to take out another loan on their property. Unlike a second mortgage, a home equity loan is more difficult to access. To qualify for a home equity loan, the homeowner must:
- Prove that they have good credit
- Have a stable income
In return, the homeowner will be granted a lower interest rate and an extended repayment period than that of a second mortgage.
Expert Second Mortgage Advice with Today's Mortgage Choice
There are many factors to consider before investing in a second mortgage. Our brokers can break down the process and help you decide whether getting a second mortgage is the right choice for you.
For clear guidance and access to the areas most trusted lenders, set up a consultation with Today's Mortgage Choice today.