Second Mortgages

Second Mortgages

A property can have many loans against it. Your first mortgage is the first charge against the property. If you take out a second mortgage it becomes the second charge against the property. Lenders consider second mortgages risky but that doesn’t mean you shouldn’t apply for one.

Why Do Lenders Consider Second Mortgages Risky?

Basically, a supplementary loan is taken out against your home on top of your first mortgage. However, if you default on your payments and your property is seized, the first mortgage would be paid out first. Lenders who hold your second mortgage don’t like this idea because they worry it will take them longer to receive their money. Conversely, this is only in the case of default. If you show that you have a long history of making your payments on time and no account of defaulting on your first mortgage, you should have no trouble securing a second one.

Why Would I Need A Second Mortgage?

Sometimes we lack the funds necessary to send our children to university. We need to put money back into our home to up its resale value but can’t afford it. We have mounting debt. There are many factors that can contribute to needing a second mortgage and each are considered of equal importance. Second mortgages often carry higher interest rates than their first cousins but these rates are generally lower than those of credit cards, vehicle lease payments and unsecured lines of credit. Instead of trying to pay for your kid’s education with a credit card or home renovations with an unsecured line of credit, it may be in your best interest to take out a second mortgage on your property instead. You will save money in the long run.

What Are The Advantages Of A Second Mortgage?

  • In most situations, your second mortgage will be awarded to you in the form of a HELOC. HELOC stands for Home Equity Line of Credit and you can borrow up to 65% of your home’s appraised value.
  • Second mortgage term lengths can vary but some can last up to 30 years.
  • Up to 80% of the appraised value of your home can be borrowed (minus the amount you have left to pay on your first mortgage).

How Do I Qualify For a Second Mortgage?

Lenders will look at the equity in your home. The more you have, the better your chances are of getting a second mortgage. Furthermore, lenders will look at your income source to verify that it is reliable and you will be able to make your mortgage payments. Your property will be examined as well so that lenders can see their investment. Finally, your credit plays a large factor in how you qualify for a second mortgage. The higher your credit score, the more attractive you are to lenders.

It is important to remember that second mortgages do not replace first mortgages. They are simply a way for you to take advantage of the equity found in your home.

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Your home is your most valuable asset. It is probably the single largest investment you will make in your lifetime. Your home is more than a place to rest your head and raise a family. Your home contains equity. It is a treasured resource and in some cases, can even be used as an ATM (aka cash back mortgages and HELOCs – don’t worry we’ll get there).

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