WHEN SHOULD YOU CONSIDER TAKING A SECOND MORTGAGE
The words mortgage and loan can haunt the best of us in our sleep. Before you can take a loan, there are a lot of calculations that you need to do. If it is a second mortgage, then the decision only gets tougher and it becomes even more essential for you to get a better deal. A Certified Mortgage Broker will understand your requirements and help you to find the perfect second mortgage option. Though you might’ve heard a lot about the second mortgage, you might not know what it is and when should you consider taking one.
What is a second mortgage?
A second mortgage is a loan that is taken by using the equity on the already mortgaged property which is used as collateral. This equity is calculated by subtracting the value of the property from the amount of money that is owed. Equity has the characteristic of growing with time. It grows when the increase in the market value of the property and as you repay the remaining capital on the loan. As it is a second mortgage, you would be required to pay a higher interest rate than you paid for the first because the first mortgage takes precedent over the second. The second mortgage can only be paid, once you have repaid the first mortgage in full. The lenders are lending at a higher risk. When you are taking a second mortgage, you can only borrow up to 80% of the equity.
When should you consider taking a second mortgage?
Here are some of the instances when you should consider taking a second mortgage.
Planning to buy another home: Buying a house to rent it out is a good investment decision. This is because the rental amount can be used to pay off the mortgage. Usually, the problem arises when you have to find financing for the down payment. You can take a second mortgage for down payment purposes.
Investment: If you are planning to start a new business or take up an investment opportunity, then a second mortgage would be able to provide you with the financing that you require.
Consolidating debt: As the amount received from a second mortgage can be used the way you want it to, many people this amount to use to pay off unsecured debts which might be expensive. It is a popular way to consolidate debt because you would be paying a considerably lower interest rate than you would on your credit card or with any other form of unsecured loan.
Carrying out renovations or upgrading the property: if you are planning to renovate or upgrade your property but lack the finances to do so, you can always take a second mortgage. This up-gradation and renovation would have a significant impact on the value of your property.
Funding Education: Higher education is expensive. Many times property owners take the route of a second mortgage to finance their or their children’s education.