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A second mortgage is a way to borrow money by using your first mortgage as collateral. It is a proven and safe way to borrow, and you can potentially access more funds then you could with the average loan. The process tends to involve many of the same details and a similar understanding of a mortgage’s legal framework.

Equity

Equity is the value of a property minus all the debts associated with it. It’s essentially the amount you actually own. In addition, the equity a borrower has in their current property is the most important factor in being approved for a second mortgage.

Your equity can be calculated by following these two easy steps:

• Locate the current market value of your property. Remember, the price you paid might not be the current value.
• Subtract your mortgage balance from that amount.

Your lender essentially wants to know how much you would make if you hypothetically sold the property tomorrow. This number is essentially part of your assets and subtracted from your loan debts.

Property Value

The value of your property is an important factor because it will most likely be used to secure the loan. Since you already have a primary mortgage, there is an additional risk for the lender because they would be second in line to be repaid.

The Approval Process

Getting approved for a second mortgage is like the process you experienced the first time around. You need to meet with a financial institution or lender and fill out an application providing key financial information. Approvals are based on an applicant’s repayment history, overall credit standing and their current home equity.

Starting the Conversation

We recommend sitting down with a lender to discuss the process and to ask any questions you might have. They can also help determine if a second mortgage is the best strategy for your financial needs, or if there’s another option that makes more sense.

Contact us for more information on how to obtain a second mortgage or to set up an appointment where we would be happy to review your situation.

Before applying for a second mortgage, there are different factors you should consider to understand the amount of funds that could be made available. Many individuals do not receive a clear explanation as to how the amounts they are able to borrow are actually calculated. Here is some insight into those figures.

Home Equity

First, the equity of your home plays an important role in their determination. This translates to the variance between its value and what you still owe. It goes without saying, but the smaller the amount you have left to pay on your primary mortgage and the greater the value your home is, the better.

Mortgage Terms

Second, the length of the mortgage term you choose will influence the amount you will be required to pay your lender each month. A longer term is often more manageable because that means smaller payments, but it will take significantly more time to pay off; if you choose to move beforehand, your equity will be less than if you paid higher monthly amounts.

Lender Fees

Mortgage lenders often charge their clients a lending fee, loan origination fees, appraisal costs, as well as a fee to reduce the loan’s interest rate. Since these amounts can all vary from lender to lender, it is important to check with at least a few different institutions to ensure you obtain the best rates and lowest fees. No matter what you decide, experts suggest also getting the amount in writing.

Rates

Like with a primary mortgage, your rate will remain the same throughout the term of your mortgage if you choose a fixed rate. A variable rate will change based on the market and can either work to a borrower’s benefit or detriment. While the fixed rate may seem more secure, you may be able to save significantly if rates decline.

It may be particularly helpful to speak with a financial advisor who can offer some insight based on industry projections. Contact us to learn more about second mortgages and how to determine the amount you may be able to borrow from lenders.