Should I Get a Second Mortgage?
Do you have massive student debt you need to return? Perhaps you have mounting credit card bills that you’re finding impossible to pay back. For anyone considering paying off significant expenses with loans, you’re in luck. There are other options out there with better consequences on your financial history. One of the most viable options for those with high debt is taking out a second home mortgage.
What is a second mortgage, you may be asking? Well, in this article, we walk you through everything you need to know to determine if this option is the right one for you. Keep reading for more.
What is a second home mortgage?
A second mortgage is a collateral home loan. It is typically taken out by homeowners who have built up equity on their first property but have not yet fully paid off the first mortgage. Thus, by borrowing against the equity of the first property, homeowners can get significant advantages - all without refinancing the existing mortgage! The line of credit is called a ‘second’ mortgage because the loan is taken out on a lien on the property.
This mortgage is also known as a home equity line of credit or HELOC.
How is a second mortgage used?
The great thing about a second mortgage is that it can be used in several different ways.
It is often used for debt alleviation purposes, such as paying off debts, loans, credit cards, outstanding bills and more. But it can also be used to cover more considerable day-to-day expenses. Homeowners can use a second mortgage to buy another property, fund their home renovation, pad up a college or education fund and pay off other expenses. You can also use it to invest in your business, cover wedding expenses or buy a car!
It can even be used to get some cash on hand or stop a power of sale. Thus, if you’re considering getting a second mortgage, it will likely come in handy no matter your needs or goals. And if you’re looking to cut your monthly payments by up to 50%, be sure to reach out to a reputable lender like Canadalend.com.
How to qualify for a second mortgage?
The criteria to qualify will likely determine if a second home mortgage is the right move for you. As with other loans, lenders will look at various factors to ensure you’ll pay back the payments consistently and promptly. They will also want to ensure you’re not too much of a risk. They evaluate all this by using three main criteria:
Credit score: You will need a decent credit score to qualify for a second home mortgage. Most lenders will ask for a score upwards of 680, although some private lenders offer options for those with poor credit history. Just remember - the higher your credit score, the less interest you pay. Check out this handy guide on things you didn’t know were affecting your credit score (so you can bump it up in the future)!
Equity: Lenders will see if your property will have enough equity left after the second mortgage is taken out. This will ensure an average loan-to-value ratio which is essential to reduce the risk level if interest rates drastically increase or your income drops. Try to ensure you have a minimum of 20% equity remaining in your home after borrowing against it.
Income: You will need to demonstrate proof of income coming in each month consistently. This one is important, as it helps lenders understand that you have the money to make your loan payments on time and in full. For this, they will look at your finances and bank statements to determine your payment capacity.
Being able to meet these criteria increases the chances of getting approved for your second mortgage. If you find yourself struggling to take out a mortgage with traditional banking and financial institutions, check out alternative flexible lenders who will help you instead.
What are the benefits of taking out a second mortgage?
To make your decision, you’ll need to consider what’s in it for you. There are some obvious advantages to taking out a second mortgage. A significant benefit is that second mortgages can be more affordable than other loan types, often with lower interest rates. In addition, you’ll get access to money which can be a huge help. You’ll also be able to borrow more money than with a personal loan - sometimes up to 80% of the value of your home! This can be highly beneficial if you’re attempting to alleviate your debt or planning to incur heavy personal expenses or costs.
A second home mortgage is an excellent option if you have substantial equity built up in your property. You can use that existing capital to borrow additional funds. Whether it’s for a college fund or that renovation you’ve been eyeing up for a while, a second mortgage can be an excellent solution for every kind of homeowner. If you find yourself confused about how to take out a second mortgage, don’t worry.
Our team of friendly mortgage professionals has years of experience guiding homeowners like yourself through a successful second mortgage. Be sure to reach out with any questions, queries or doubts so you can get started on the process today.
For more information on a second home mortgage, call Canadalend at 1-866-422-6536 or contact us here.