A lot of homeowners are not really aware that they can take out a second loan on their property even when their primary loan is still unpaid. This is often referred to as second mortgage. Second mortgages are actually useful especially when you are in need of extra cash for your child’s tuition, home renovation, or even for emergency purposes.
Types of Second Mortgages
There are two types of second mortgage loans that you should know of and these are:
- Home equity line of credit.This type of second mortgage is almost the same as that of consumer line of credit with the exception that in home equity line of credit, you are allowed to borrow a specific amount on the equity of your property. Second mortgages, if approved, can give you access to 80% of the equity in your home with major cities offering 85%.
- Home equity loan.On the other hand, home equity loan gives you a lump sum with your home serving as collateral. If you are able to work with second mortgage lenders, you will be able to get your home equity loan just like the same way you did with your first loan. This way, the interest rate is going to be fixed so that you will be able to plan your payments properly. However, expect that the interest rate will be higher compared to that of your first loan.
Should You Get a Second Mortgage?
Second mortgages can be expensive at times, but they can be convenient too. However, if there is a lot of equity in your home, then you already have leverage. You can also use a second mortgage if you wish to consolidate all of your debt, but before you do apply for one, make sure that you know what the end plan for it is. For example, if you will be paying off your loan quickly then this is a good option to consider. On the other hand, if you are going to make long term payment on your second mortgage, you will end up paying more because of the two loans that are in effect.
If you are planning on taking a mortgage loan, you will need to look for second mortgage lenders who are willing to take the risk. Keep in mind that if you aren’t able to make payments with your second mortgage, the lender can start the foreclosure process, with the first lender getting paid first. This is why second mortgage lenders tend to have higher risks when they accept such as applications.
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