Getting A Second Mortgage

Types Of Second Mortgages

Home Equity Line of Credit 

A home equity line of credit is a line of credit insured by your home that affords you a rolling credit line that can be utilized to fortify higher interest loans or for substantial expenses. Home equity line of credit (HELOC) is structurally similar to the consumer line of credit. Except that Home equity lines of credit allows you to take a certain amount against your home equity.

Home Equity Loan

This type of loan uses your home as a guarantee to enable you to take a handful of cash. The interest rate is customarily high and at a relentless pace. This will allow you to map out a consistent repayment plan. Generally, people prefer Home Equity loans over Home Equity Line of Credit. The reason is that it enables you to secure a good amount of money. However, for homeowners with an outstanding credit score and home equity of greater than 20%, HELOC is the most suitable choice.

Why You Should Consider Taking A Second Mortgage

People take second mortgage loans for various reasons such as emergency medical expenses, investments, child tuition fees, home renovation, consumer debt consolidation, etc.

The two most common reasons are home renovations and debt consolidation. For home renovation, homeowners take second mortgage loans to add value to their property by renovating and improving its standards. This will guarantee an increase in weight, in case they decide to sell it. In their bid to get rid of the high-interest consumer debt, homeowners mortgage their home for a second mortgage loan. Like the first mortgage loan, a second mortgage loan has a lower interest than unsecured loans like credit card debt, cash advance, auto loan, etc. This will take a huge burden off their shoulders and allow you to save a lot.

To qualify for a second mortgage, lenders particularly look at four major requirements:

• Proof of Income: You need to provide lenders with proof of income, either from your employer or bank statement; this serves as proof that you can service your debt.
• Good Credit Score. Credit rating goes a long way in showing your financial discipline. A higher credit score gives room to negotiate for a lower interest rate.
• Equity: Similar to Credit Score, the higher your equity, the higher your chances of qualifying for a second mortgage. 
• Asset or Property: Having a property to back up your mortgage loan is a must. A good credit score and having a stable income can still be risky. Therefore lenders collateral that will provide security to their investments in situations where you cannot repay your mortgage.

In Conclusion

Various factors might contribute to your interest in getting a second mortgage, and it’s essential that you carefully evaluate all before you make your judgment. The most crucial factor you should consider first is your ability to keep up with the payment of both your primary and second mortgage consistently without defaulting. Combining the two payments can quickly become overwhelming.

This is the reason why consulting a professional mortgage is very crucial. An experienced broker will consider your financial standings to help you make the right decision on whether to take a second mortgage or not.  

Several people find themselves in a deep financial hole after obtaining a second mortgage to settle debt because they fail to diagnose and solve the problems that caused them to wind up in debt initially. So before applying for a second mortgage loan, take some time to consolidate your debt and apply responsible spending habits. Also, have a budget. Take out time and plan an implementable budget. Having a budget could help you cut out what’s unnecessary and highlight areas you can improve on.

However, if you have a thorough understanding of how second mortgages work, you can commence the application process for a second mortgage either through the lender of your primary mortgage or a professional broker who you can work with to find the most suitable deal that fits your economic situation. But if you decide to go ahead and do it without a broker, ensure you evaluate offers carefully and choose the best. Because there could be differences in repayment terms, and interest rates also vary.