Financial decisions are either make or break it. You know you need to take a calculated decision. A poor decision can set you back by years and cause a lot of stress and anxiety. If you plan to take a second mortgage, you need to reach out to a Certified Mortgage Broker. They will educate you about the options that are available to you. Even help you to determine whether you are a good candidate for a second mortgage or not. Before you take any decision, you must educate yourself.
What is understood by a Second Mortgage?
The second mortgage is a kind of a loan. This loan uses the equity on an existing mortgaged property as collateral. The equity is calculated as the difference between the market value of the property and the amount owed. With time, the equity begins to grow with the increase in the market value of the property and as you repay the loan. A chuck of the repayment comes off the capital raising equity. You can decide whether you want to use the equity to finance other projects. This loan is referred to as the second mortgage, as the borrower already has the first one.
When you take a second mortgage, the interest rate tends to be higher than the interest rate on the first mortgage. The reason behind this is that the first mortgage has precedence over the second one. The second mortgage will only be paid once the first mortgage has been completely paid off. This implies that the risks attached to the second mortgage are significantly higher as the lender might not fully recover the loan if the borrower defaults. When you are taking a second mortgage, the amount you can borrow is only up to 80% of the home’s equity.
How does it work?
The second mortgage is a financial instrument that lets the property owner use the equity on their property to get a second loan. When you are taking a second mortgage you could either arrange one large lumpsum payment. This payment can be repaid by having a monthly instalment payment place. The contract for the second mortgage would include the capital, the interest rate, the repayments and the repayment term. After you have paid off the mortgage, you would have to conclude the other mortgage contract If you want to take a mortgage against the home’s equity.
The second mortgage can also be secured through a Home Line of Credit or HELOC. This is also referred to as revolving credit. This means that you have a line of credit money available to you whenever you require it. It is up to you whether you want to use it or not. You aren’t required to pay any interest till you use it. There is a top limit for borrowing is set by the lender. You can repay whenever it is convenient for you. The interest is only to be paid on the amount that is owed.