A second mortgage happens when an additional loan is taken out on a property that already has a mortgage on it. Typically, this happens with residential mortgages, and homeowners take a second mortgage when they have an emergency need for extra cash or want to make some major renovations to their home, pay off high-interest debts, consolidate multiple debt payments into one low monthly payment or for a large purchase or investment. Simply put reasons for taking out a second mortgage are dependent on each individual homeowner and their needs for cash. Our team at Brampton Mortgage Broker has put together this blog to help give you some insight on what you need for a second mortgage to be approved. Please read along and if you have any questions regarding how to get a second mortgage, make sure to reach out to our team at Brampton Mortgage Broker so we can help you out.
Why is it different than a first mortgage?
Typically, the rates are little higher on second mortgages because it is considered to have more of a risk for payments to be defaulted on. There are also different types of second mortgages, continue reading below to find out more about the different types of second mortgages that are available to homeowners.
Home Equity Line of Credit
Also known as a HELOC, this option is most often available to homeowners who have a good or exceptional credit score and have more than 20% equity available in their home.
A line of credit will offer a much lower interest rate than an actual second mortgage and you would be able to use as much or as little cash on the line of credit as you need to at the time. It also offers revolving credit so as you pay it down you get more credit available back to you.
Second Mortgage on a Primary Residence
This applies when you are looking for additional funding on your current residence and are getting another mortgage before your first one is paid. If you have less than 20% equity in your home, or your credit score a little lower than desirable, a second mortgage loan will be required. This loan will be a definitive amount and will have installment payments that need to be paid back on a pre-determined timeline – exactly like your first mortgage.
Mortgage to Purchase a Second Property
You can also get another mortgage if you are looking to purchase a second home or vacation property. When doing this, you are using the value of the second property for the mortgage so it’s a little more like when you purchased your first home.
Why do you need a second mortgage?
There are a couple of reasons you may want to consider getting a second mortgage, let’s explore a few of them below.
Most times second mortgages will offer a lower rate of borrowing than traditional credit cards would offer. So, if you have large balances on credit cards then getting a second mortgage to help you pay off those credit cards (and get you out of debt) can make a big difference in how quickly you pay them off.
Major Home Renovations
Are you dreaming of a completely new kitchen? Or maybe you want to put an addition on your home to expand your living space. Large home renovations can be expensive to finance, so sometimes a second mortgage can help give you the cash needed to turn your home into your forever dream home.
Many homeowners want to purchase a cottage or vacation home for their family to enjoy, but they are unable to purchase it with all cash so they need a mortgage to fund the purchase. This can be considered a second mortgage because they often already have a mortgage on their primary residence. Purchasing a vacation home when you already have a home does have different criteria for purchasing, which we can help you with to make sure you qualify.
What do you need to qualify for a second mortgage?
Qualifying for a second mortgage is a little different than getting your first mortgage, for a couple of reasons. If you are going with a lender to fund a full second mortgage (and not getting a home equity line of credit) then you will need to get a few things together in order to qualify.
One of the biggest factors lenders will look at when it comes to qualifying for a second mortgage is the amount of equity you have in your home currently. The more equity you have in your home, the higher your chances are of getting a second mortgage (and getting it for the amount you’re asking for or need to have).
Lenders want to know that you’re going to be able to make the payments on the mortgage you’re taking, so they’ll want some kind of guarantee you have the capacity to do so. They will probably require recent pay stubs in addition to confirmation from your employer as to your tenure and salary.
The better your credit score, the lower the interest rate you can get – it’s really that simple. Your credit score will definitely play a role in getting your second mortgage, and one that has a good interest rate.
Lenders will look at the current value of the property the mortgage is on to make sure they are not lending out more than the property is worth. This might include a formal appraisal.
We’re here to help
No matter your reason for seeking out a second mortgage, we’re here to help with everything you need to know and all the questions you have. We have access to dozens of lenders across our mortgage lender base, so we know we can find the right second mortgage lender that will work for your needs and your lifestyle. Getting a second mortgage doesn’t have to be stressful or difficult, and our team of mortgage brokers at Brampton Mortgage Broker are here to make the process as smooth as possible for you.
Give us a call today to talk about your needs for a second mortgage and how we can help make sure your financing goes through, without any issues. We know mortgages, and we’re here to work for your best interests.