Understanding Second Mortgage |
Home mortgage is a loan that you take from a lender with your home as collateral. Second mortgage is the second loan you take on the debt free portion of your already mortgaged property. You can take such a mortgage from your current or a new lender, as it is a completely different loan from your primary mortgage.
Second mortgages generally have higher rates of interest as compared to primary mortgages because of the low priority it has in event of a default closure. Being a secured loan, the interest rates are lower than the unsecured loans, such as credit card or personal loans.
When to take second mortgages
- Remodeling of home - Usually this project requires a significant sum of money. Mortgaging your house for the second time could be a way to raise the funds required for it. Remodeling your home also raises your equity, as you are increasing the current value of your home in the process.
- Debt consolidation - If you have a number of debts such as auto loans, tuition fees and credit card debts, it may be a good idea to take a second mortgage to consolidate them. You would be making a single low monthly payment, which would be lesser compared to all individual loans' repayments put together.
How to get second mortgages
It certainly helps to have a good credit history. If the lender perceives you as a low-risk borrower, the chances of getting a loan increase. People with bad credit history are generally perceived as high-risk borrowers and are charged higher interest rates for a loan.
One of the first things to do when considering a mortgage is to have the property appraised according to the current real estate scenario. Having your home professionally appraised can help you get a realistic idea of your home's current worth. In this way, you can confidently discuss the terms and conditions of your loan with your lender.
You can avail the services of mortgage brokers if you are unable to find a lender on your own. These are professionals with the required contacts in the lending industry and can help you find a suitable lender and mortgage deal. All the paperwork is taken care of by them, making the process considerably simplified for you.
Benefits involved
Second mortgage comes with the option of long repayment terms, which in some cases go up to twenty or thirty years. It could also be a way of avoiding the payment of private mortgage insurance when you are buying a home. These loans are also lesser costly compared to other loans and can be a great way to raise big money easily.
Drawbacks of taking second loan on your home
After taking the second loan, you would have exhausted most of your home equity. Being in so much debt might look bad on your credit score in case you apply for another loan.
A major drawback of a second mortgage loan is the possible consequences of default. The penalty could be big - you may just end up losing your home. You should only consider this loan after establishing that you have surplus cash to make the required monthly installments.
For more information on second mortgage or to talk to a mortgage broker in Canada, contact Canadian Mortgages Inc. Article Source: http://EzineArticles.com/?expert=Jeff_Livingston |
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