There are many things to consider before getting a second mortgage. First is the fact that a second mortgage is a loan that goes on top of a primary mortgage, meaning, it is an additional loan that uses the home’s equity as collateral. Another big factor is whether the purpose of the loan is worth it for the hassle of getting the loan. After all, it isn’t a secret that getting a second mortgage involves a few steps that take time, effort, and money.
Mortgage rates are at a historic low for September 2020 in Canada, paving the way for an increase in refinancing and homebuying. This may be a reason why you might be interested in getting a second mortgage at this time. However, you must know that interest is just one of the things to consider for getting a second mortgage. Below are other factors that you must look into.
Cost of a Second Mortgage
Getting a second mortgage is not cheap. The cost will vary depending on how much you will be borrowing, your lender, and what type of second mortgage you will be taking. You will have to pay a closing cost as well as an appraisal fee, underwriting or application fee, recording fees, and possibly more especially if you will be applying for a second mortgage from another lender other than the one you have for your primary mortgage. The lender may charge a fee for a second-lien position as a form of insurance for the extra risks that the lender will be taking.
Uses for a Second Mortgage
You can use a second mortgage for almost anything that needs a large sum of cash. Most people use theirs to pay for a home renovation and for debt consolidation. Some get a second mortgage to pay for an investment such as a new business, another property, or higher education. For some people who use their second mortgage for debt consolidation, they do so because they end up saving thousands of dollars in the long run. Whatever you use your second mortgage for, it is best to consider if the purpose will outweigh the risks. The result has to be worth your time, money, and effort.
Second Mortgage Alternatives
If you’re looking for ways to access your home’s value for funding, getting a second mortgage is not the only way to achieve that. Mortgage refinancing is an option more so if you do not qualify for a second mortgage. This may result in a lower amount that you can use but is worth consulting with a mortgage professional with.
Other Points to Remember
A second mortgage is an additional financial burden because it is a loan taken on top of the mortgage loan you already have. Getting a second mortgage may make you more vulnerable to risks of losing your home.
There are several types of second mortgage that each come with pros and cons. Consulting with a mortgage professional is a smart move to make sure that you are choosing the best fit for your needs and financial capabilities.