Understanding the Basics of a Second Mortgage
There are many benefits of home ownership.
Here’s one more and more people are beginning to realize: you can use your home as collateral and borrow needed money against it by acquiring a second mortgage.
While this has always been the case, it was just a few years ago when lenders and banks stopped curtailing the amounts - and restricting the circumstances - that allowed you to receive 2nd mortgages. There is now a wide selection of home loans within this category available to fit your needs.
Second mortgage interest rates
Thanks to competition among lenders, the 2nd mortgage interest rates on the market today are fairly reasonable. In some cases, interest payable is far below the prime lending rate, otherwise a conventional yardstick for second mortgage loans.
It is important to remember that your house will be designated as security for such a loan, so you be sure to choose the best financial deal out there; keep your budget limitations and long term income in mind.
The second mortgage vs. the first mortgage
A second mortgage is a loan taken after the first mortgage, secured against the same assets as the original. It is based on the amount of equity/interest/ownership you have in that property; or the difference between the current value of the property and the amount you owe on it.
Second mortgages are arranged for various purposes, such as financing home improvements, college tuition fees, debt consolidation or other emergency expenses. If you have gathered enough equity, another option is apply for mortgage refinancing on your home and borrow funds in excess of your current loan balance.
Typically, a second mortgage carries a higher rate of interest than a first mortgage. Therefore, if interest rates are low, refinancing becomes a more appropriate option. Because underwriting guidelines are less strict for second mortgages, it usually takes less time and effort to receive a second mortgage than to refinance a loan.
Choosing a second mortgage
When choosing a second mortgage, you can typically choose between three types:
- A traditional second mortgage
- A home equity loan
- A home equity line of credit
Speak with our brokers and representatives today to learn more. Make sure you’re clear on every aspect of this process.