Second Mortgage: What It Is, Prerequisites and Why Is It Needed?
Have you been regularly paying off your mortgage? Yes. There might be a situation where you suddenly start receiving emails and messages consisting of intrigued letters.
“Second Mortgage! Time to renovate your home! Buy exotic cars!”
Now you do what? Fall prey to the irresistible promises popping out? Won’t you think for a while if it involves risk or no?
Don’t worry! Before you start your application and get tied to another mortgage, here are some valuable insights about the second mortgage.
What Is Second Mortgage?
A second mortgage is an additional loan that someone takes on to get access to financing. It considers your home as collateral (security) if you fail to pay the regular payments.
Types of Second Mortgage
– Home Equity Loan:
When you take out the home equity loan, you get the entire loan amount at once with a fixed interest rate. Your lender provides you with a stacked amount for each month based on your equity. Every month you must pay off the said amount to your lender.
– Home Equity Line of Credit (HELOC):
Rather than allowing a lump sum amount, your lender approves you to borrow how much amount you need. It acts like a credit card limit. With HELOC, you only pay for the amount you borrow, and it comes with variable interest rates.
Prerequisites for Second Mortgage
When it comes to issuing the second mortgage, lenders want to know these things. Also, it is risky for them if in case your home is foreclosed, the first mortgage lender will take possession of your home.
It is the market value of your property after deducting your mortgage balance. The lender may ask an expert to evaluate so that they get an accurate number of your equity.
If you didn’t pay off the first mortgage regularly, it becomes tough to get another one. You have to prove your lender that you will consistently pay your mortgage.
– Minimal debt:
Your lender will ask you about your steady income. Also, the lender will review your tax returns and bank statements to check if you are high/low on debts.
Why People Opt for Second Mortgage?
– To Clear Another Loan or Debt:
Homeowners use the second mortgage to pay off the student loan, credit card, medical debts, or even to pay a portion of their first mortgage. It helps in a faster repayment process and lowers the monthly debt payment.
– Home Renovation:
Always wanted a swimming pool, though you were low on cash? Most homeowners use the second mortgage to renovate their homes. The idea behind the renovation is to increase the market value of your home, in turn gaining you more equity. It is indeed the most efficient way of utilizing the second mortgage.
– Vacation and Personal Use:
People take out the second mortgage for making trips and buying lavish cars. Indeed, this is not the wisest decision. It will trap you for debt. Before signing your home away, talk to a professional expert!
Before making any decision that will affect your future, look out for qualified assistance from someone who knows the ins and outs of the mortgage. Whatever your finances look like, Drew Mortgage Associates will provide you with the information you need. Being an experienced mortgage lenders in MA, our financial experts will help you find the right solution for your situation.