Applying for a second mortgage is not easy if you do not know what you are doing especially during uncertain times. However, now might be a smart time to get a second mortgage with the help of mortgage professionals who can assist you and put your needs as a priority. Read on below to find out the things that you must know when applying for a second mortgage.
Getting a Second Mortgage
True to its name, a second mortgage is a type of mortgage loan that you can get on top of your primary or first mortgage. It is a home loan because it is secured by your home equity. A second mortgage will allow you to access as much as 80% to 90% of your home equity depending on the specific type of second mortgage that you plan to get. Most people who apply for a second mortgage instead of a mortgage refinance do so because they are trying to avoid the fees linked to breaking a primary mortgage.
Why Get a Second Mortgage
Although there are many uses for a second mortgage, the most common reasons people cite is that they want to use the funds for a home renovation project, debt consolidation, or to pay for higher education. By getting a second mortgage, you can take advantage of specific benefits that come with each mortgage type and can help place yourself in a better financial position than your current situation.
Kinds of Second Mortgages
A second mortgage can be a smart financial decision if you know how to use it. You can choose to get a HELOC to help you pay for several smaller expenses that are coming up and cannot be covered by your savings. It is a revolving line of credit that will also allow you to reuse your credit line after payments. Think of a HELOC like a credit card that you can borrow from again and again as long as you are paying off when you can to keep your line of credit open. You can also opt for a home equity loan if you need access to a lump sum of cash for huge expenses or purchases such as for debt consolidation, investment funds, or an extensive home renovation.
Dangers of Second Mortgages
Second mortgages have a higher risk of not getting paid compared to a first mortgage. In the event of financial difficulty, any monies left will go to paying debts; however, a primary mortgage will always have first priority before a second mortgage. Because second mortgages carry a lot of risks for the lender, they set a higher interest rate for it as well as pose more requirements before qualifying someone to avail of it. Bigger institutions are typically very strict about their requirements, which is why it can be easier to apply for a second mortgage with a smaller lender.
Should You Get a Second Mortgage?
You need to take a hard and objective look at your current financial situation to gauge if you can qualify for a second mortgage. You’ll have to take into consideration that lenders will typically have slight variations in their requirements that can allow you to qualify for one and not the other. If you need help applying for a second mortgage or getting approval, be sure to contact us at Mortgage Central Canada for professional assistance. Contact us today!