Opt for second mortgage to borrow against your home equity
If you are unable to make two ends meet with your limited income and need extra money for a specific purpose, you can opt to take a second mortgage.
What second mortgage means
It is the loan that you take keeping your home (on which there already is a primary mortgage), as collateral. The second mortgages are junior to the first mortgage and in case of a foreclosure sale, it will be paid out only after the first mortgage is fully repaid. The second mortgage generally has shorter maturity period than the first one. You can borrow an amount based on your home equity. It will be calculated on the difference between your current home value and the amount you have already paid towards your first mortgage.
You can get a second mortgage from lending institution. It would be better for you to approach the lender, from whom you have taken your first mortgage. You can also get the loan from your bank or credit union. Taking loan from a known person or organization will help you to save money on processing charges.
When to opt for a second mortgage
You can opt to take a second mortgage, if you have undergone the situations mentioned below:
• If you want to avoid paying towards private mortgage insurance and want a loan, which will equal to 20% of your existing loan amount.
• You have incurred a huge amount of debt in credit bills or medical bills or tuition fees for your children or auto loan, and want to pay off your debt.
• You want some cash to invest in your business or in any other form like, stocks, bonds, etc. However, you need to make sure that the rate of return on your investment should be higher than the second mortgage rate.
• You need cash to do some repair or renovation in your home, so that you can live more comfortably in it.
Cost of second mortgage
When you opt to take a second mortgage, you need to pay towards the following things:
• Application costs for the second mortgage
• Appraisal fees
• Cost for doing title sear
• Closing costs
What are the advantages of second mortgage?
The advantages of taking a second mortgage are:
• Irrespective of your credit score, second mortgage allows you to cash out on larger amount of money at interest rates that are lower than that of credit cards and HELOCs.
• The loan terms and interest rates on your first mortgage remain unchanged, so you don’t have to go for refinancing.
• Due to its flexible guidelines you can opt to take a second mortgage for any purpose.
You should keep in your mind that if you fall behind your payments, you can lose your home. The interest rate for second mortgages is also higher than that of first mortgage. So, you should take out money, which you will be able to repay comfortably, without undergoing any financial stress.