Most homeowners apply for a second mortgage for reasons such as financing a kids’ education or paying off credit cards. A second mortgage is an additional lien on your property. There are many considerations before securing a second mortgage, but this definitely isn’t something you can rush into. You’ll need to gather and consider a few facts before you take out a second mortgage, and even if this is the right choice for you, you’ll need to proceed with caution.
Types of Second Mortgages
There are 2 major types of second mortgages. They are home equity loans and lines of credit. A home equity loan pays you a lump sum amount when the loan is approved. You will need to repay the loan amount in installments over the life of the loan. A line of credit works similar to a credit card. You get approved for a certain line of credit. You can withdraw money up to the approved line of credit. Your monthly payments will be based on your outstanding balance.
Eligibility for a Second Mortgage
Your eligibility to get a second mortgage depends on several factors. Most importantly, you will need sufficient equity on your property excluding the amount on your first mortgage. You will be considered for a second mortgage amount on the remaining equity only.
The process is similar to your first mortgage. The lender will check your credit history. You will need a good credit history to get a good rate. You will need to provide a ton of documents supporting your employment, tax history and all your assets. According to the mortgage brokers in Edmonton at Performance Mortgage & Credit Services Ltd., it may take anywhere from 2 to 6 weeks to approve the loan. The lender will give you a check for the approved amount.
Do I need a Second Mortgage?
You must carefully consider this question before applying for a second mortgage. The answer depends on your financial need. If you can borrow money at a lower cost, then do not apply for a second mortgage. Sometimes, you can borrow money from credit card companies at low rates. In this case, you might be better off not taking a second mortgage. Remember, a second mortgage adds to your monthly expenses.
Advantages of a Second Mortgage
The major advantage of a second mortgage is that your interest payments are tax deductible. Further, the interest rate on a second mortgage is much lower compared to rate charged by a high interest credit card. While there are advantages, as mentioned before, you really want to think about whether or not you truly need a second mortgage before jumping in.
A second mortgage is great financial tool if used carefully. Do not apply for a second mortgage because you have additional equity on your property. Apply for a second mortgage only if it justifies your financial goals. If you are unsure whether or not you can handle a second mortgage, consult with a financial professional before taking any major steps to ensure that you aren’t jeopardizing your financial stability.