When it comes to mortgages, there’s something for everyone. A second mortgage can really help you out when you need funds and have home equity built up. Although many people are nervous about the term “Second Mortgage,” it isn’t as scary as it sounds. How does a second mortgage work? What do you need to qualify for one? Is a second mortgage what you need? Our team of Mortgage Brokers at Brampton Mortgage Broker has put together this blog to help go over what a second mortgage is, and why you should get one.
What is a Second Mortgage?
In simple terms, a second mortgage is another mortgage you obtain on an already mortgaged house. This means a second mortgage can be a stand-alone mortgage, where the second mortgage isn’t taken out at the same time as your primary mortgage. In a simpler explanation, it is a loan that is taken out when you already have a primary mortgage in place and are looking to obtain more funds.
Some second mortgages have a nickname, such as piggyback mortgages.
They are a type of mortgage that you borrow against the value of the home, in other words, you use the home equity you have available.
Second mortgages are often used when people want to pay off large debts or need to obtain large amounts of cash quickly. The process of getting a second mortgage can take as a few days to a few short weeks to be funded and closed, allowing you to obtain the amount of cash you need quickly and easily.
It is also good to remember that a second mortgage is its own loan, and you will need to pay it back over time. It is connected to your home or property, so if you don’t pay it back or miss payments, there is a chance you will lose your home. Sometimes, your credit score can be affected when you use a second mortgage to pay off debt, so see what your options are. Second mortgages can last around 25 years.
Two Types of Second Mortgages
There are two types of second mortgages and our team of Mortgage Brokers at Brampton Mortgage Broker can help you decide on the one that suits your financial needs the best.
- Lump-Sum: A lump sum is a standard type of mortgage. You use a home equity loan which gives the funds in a lump sum amount. The funds can be used for whatever need you have and you can repay the loan over a set schedule of monthly payments.
- Line of Credit: In this type of loan, you will use funds from a line of credit. You will have the option of taking out money if you need it. The loan has a maximum borrowing limit, and you can borrow and repay as many times as you need to, up to that limit.
Foremost Reasons to Get a Second Mortgage
There are different types of mortgages for everyone. People choose a mortgage for their own reasons and lifestyles. Here are some of the top reasons people choose a Second Mortgage.
- Second mortgages let you use home equity without having to do a mortgage refinance. You can borrow anywhere up to 85% of your home value, not counting the amount you still owe on the primary mortgage.
- Pay off debt: many people choose a second mortgage to pay off debts and other financial responsibilities. Credit cards, student loans, and medical bills are all different forms of debt.
- Renovations: Sometimes your home will need sudden repairs or renovations. Because renovations can cost a lot of money, often more than we can normally afford, a second mortgage will allow you to have the funds to pay for the work.
- Sudden important purchase: An example of this would be a car. Your car breaks down and you need another one, so a second mortgage will allow you to have the funds to replace your car.
- Can use home equity to get the loan: if you have built up home equity, you can use this for your loan. For some, it may be easier to use home equity to pay off a debt.
- Looking for lower payments: many people like second mortgages because you can get a lower interest rate, a longer period to repay, and tax-deductible lower interest payments. This is done by a second mortgage by spreading out your debt over several regular payments.
- Pay for post-secondary tuition: Some pay for tuition with a second mortgage so they can afford to get into the school and program they want, without the worry of having enough money.
What do you need to qualify for a Second Mortgage?
You still need to apply for this loan, even though you already have gone through the process to get the first one. What do you need to qualify for a second mortgage? You will be required to provide the following basic information:
- Basic application and consent form
- Your income details
- Any equity you have
- Your property details
- Your credit score
When getting a second mortgage, you will have a better chance at qualifying if you have all of the above requirements. You should be able to prove you have equity, a dependable source of income, and can make regular payments on a loan. Having a high credit score will not only help you get a second mortgage but will also help your interest rates to stay low.
Having these qualifications will make it easier to secure a second mortgage. Lenders need to see if you can make regular payments on the loan once you get it.
How can you find the right Second Mortgage to suit your lifestyle and financial situation? A mortgage broker will be able to assist and guide you because they have the various resources to locate the perfect insurance companies, lenders, banks, or private funding to find the right one for the situation. You can get better rates and loan access since the broker knows where to look and who to talk to. Brokers can save you a lot of time, money, and energy.
If you have any questions about second mortgages, contact us today and speak to one of our Mortgage Brokers at Brampton Mortgage Broker we will be able to help you find the right second mortgage to work best for your financial situation.