Many homebuyers don't know they can take a second mortgage on their homes. The first loan, the primary mortgage, is taken while purchasing a property. A second mortgage is a type of mortgage that lets you borrow against the value of the same property while your first loan is not fully paid.
Knowing how second mortgages work can be beneficial in the future, especially when you need quick cash for an emergency, school fees, debt, and more. In this article, we’re going to break down how second mortgages work and when you might consider getting one.
What is a Second Mortgage?
A second mortgage is a type of subordinate mortgage obtained while a primary mortgage is still in effect. In cases of default, the proceeds from the home’s liquidation would first go to the primary loan. Anything left over would then roll over into settling the secondary mortgage.
The interest rates for second mortgages are usually higher because a second mortgage would only receive repayments when the primary mortgage is paid off, but the amount borrowed will be less compared to the primary mortgage.
A loan is always taken out against the equity in your property, and second mortgages aren’t exempted. The loan amount that a second mortgage lender will offer depends on the equity you’ve built up in your home.
Benefits of Second Mortgages
Just like other loans, a second mortgage has its advantages. Here are some reasons you might consider a second mortgage over refinancing your current mortgage.
Get a Higher Loan Amount
Getting a second mortgage can let you get high loan amounts. Some lenders will let you borrow up to 80% of your home’s worth. This means you can borrow more cash with a second mortgage than with other loans, especially if you’ve been paying your loan for a long time.
Lower Interest Rates
Second mortgages usually have lower interest rates compared to other types of loans. It’s because second mortgages are considered secured debt. This means second mortgages have collateral behind them; the collateral being your property. Because there are fewer risks for lenders, lenders will offer lower rates for second mortgages than credit cards.
Types of Second Mortgages
Home Equity Loan. A home equity loan lets you take a lump-sum payment from your home’s equity. When you take out a home equity loan, your second mortgage lender gives you a percentage of your equity in cash.
In return, the lender gets a 2nd lien on your home. You pay the mortgage back in monthly installments with interest, just like your primary mortgage.
Home Equity Line Of Credit (HELOC). HELOCs don’t give you cash in a single lump sum. They work like credit cards. Your lender approves you for a line of credit based on the amount of equity your property has. After that, you can borrow against the credit the lender offers you.
If you’re qualified for a second mortgage, it can help you pay for home renovations, pay for your child’s tuition fee, and more.
If you’re ready to get a second mortgage, call one of our helpful loan officers for more info.
Home Financing Inc. - NMLS 60506 Accessibility Statement
Home Financing Inc. - NMLS 60506 strives to ensure that its services are accessible to people with disabilities. Home Financing Inc. - NMLS 60506 has invested a significant amount of resources to help ensure that its website is made easier to use and more accessible for people with disabilities, with the strong belief that every person has the right to live with dignity, equality, comfort and independence.
Accessibility on Home Financing Inc. - NMLS 60506 website
Home Financing Inc. - NMLS 60506 makes available the UserWay Website Accessibility Widget that is powered by a dedicated accessibility server. The software allows www.hfiloans.com to improve its compliance with the Web Content Accessibility Guidelines (WCAG 2.1).
Enabling the Accessibility Menu
Home Financing Inc. - NMLS 60506 accessibility menu can be enabled by clicking the accessibility menu icon that appears on the corner on the page. After triggering the accessibility menu, please wait a moment for the accessibility menu to load in its entirety.
Home Financing Inc. - NMLS 60506 continues its efforts to constantly improve the accessibility of its site and services in the belief that it is our collective moral obligation to allow seamless, accessible and unhindered use also for those of us with disabilities.
Despite our efforts to make all pages and content on Home Financing Inc. - NMLS 60506 website fully accessible, some content may not have yet been fully adapted to the strictest accessibility standards. This may be a result of not having found or identified the most appropriate technological solution.
Here For You
If you are experiencing difficulty with any content on Home Financing Inc. - NMLS 60506 website or require assistance with any part of our site, please contact us during normal business hours as detailed below and we will be happy to assist.
If you wish to report an accessibility issue, have any questions or need assistance, please contact us by sending an email to: email@example.com