A second mortgage is an additional loan that is taken on a home that has already been mortgaged. A different mortgage lender will issue the second mortgage to the homeowner. A second mortgage can be used in order to consolidate high interest debts.
You can also use your second mortgage to pay for home renovations in order to increase the value of your home. Another common reason to take out a second mortgage is to pay for unexpected emergencies or medical bills.
Here, we will discuss how getting a second mortgage can benefit your new home.
Uses of Second Mortgage Funds
Emergencies can happen unexpectedly. Thus, you can use a second mortgage to pay for an unexpected death in the family, or to cover emergency surgeries and other medical treatments.
However, you can use your second mortgage for virtually anything that you want. For example, you can use the money to go on a much-needed vacation after a stressful year at work. Or, you can use it to remodel your home if you are in the mood for a new look.
You can also use the money to pay your student loans, or to create a college fund for your children. A second mortgage helps people take care of expenses that may arise in the future.
Requirements for Applying for a Second Mortgage
A copy of your last two bank statements may be required by your financial institution in order to qualify for a second mortgage. They may ask you to provide them with several pay stubs as well in order to provide proof that you can pay back the second mortgage. This process is known as income verification. If your source of income is deemed to be dependable, then you will likely qualify for the second mortgage.
You will also need a good credit score. A credit reporting enterprise will review your credit history on behalf of your lender. A good credit score will likely reduce the interest rates that you will need to pay.
As well, your lender will ask that you provide them with a listing of all of your equity. Essentially, the more equity you have, the more likely you will obtain the second mortgage that you want.
The lender will also perform a thorough assessment of your property value claim. In this case, they want to ensure that the home is actually worth as much as you claim it to be.
Sources of a Second Mortgage
You can obtain a second mortgage from a local bank. The amount of minimum equity required will vary depending on the financial institution that you choose. The required credit score will also vary from bank to bank, and the interest rates will differ, so it is best to compare rates, requirements, and terms before signing anything.
Trust companies and private mortgage lenders also serve as options for those looking to obtain a second mortgage. It is important to note that the second lender takes on more risk when a second mortgage is issued. As a result, some lenders may not offer second mortgage packages to their clients. Each lender in the market will offer their own terms and conditions, which will be determined by their risk tolerance.
Financial institutions, local banks, equitable trust companies, online lenders, and mortgage brokers are just some of the lenders in the industry that may offer you a second mortgage.
Benefits of Second Mortgages
A second mortgage will allow you to borrow a significant amount of money. The loan is secured by your home, which is likely worth a large amount of money. In some cases, you may be able to borrow up to 85% of your property’s value.
The interest rates for second mortgages also tend to be lower than other forms of debt. The risk that your lender assumes is lower than other types of debt, as your home is used as collateral in order to qualify for a second mortgage loan.
Unsecured personal loans, such as credit card loans, tend to charge higher interest rates in order to offset some of the risk that the lender incurs.
It may also be possible to obtain a mortgage interest deduction for the interest that you paid on your second mortgage. However, before you begin taking deductions, please speak to your accountant, as there are several technicalities that you should be aware of beforehand.
If you have any doubts or concerns about how much you will need to pay on a second mortgage, based on your current situation, then you can use a free mortgage calculator. There are several mortgage calculators available online, and they will help you calculate the amount that you will be expected to pay each month for your second mortgage.
From flexible payment terms and rates to the elimination of private mortgage insurance, there are many reasons to obtain a second mortgage for your dream home.