Advantages and Disadvantages of a second mortgage insurance
Advantages and disadvantages of a second mortgage insurance
Before we get into the advantages and disadvantages of second mortgage insurance, let us understand what a second mortgage is all about. It is a type of loan where an individual uses their property as collateral, which is very similar to the loan you take out when purchasing a property. It is called a second mortgage because the loan you take out to make a purchase is the first loan, and in the event your home goes into foreclosure, or you are looking to renovate your home, a second mortgage can come in handy. If you are unable to pay your mortgage, and the lender sells your property, your first mortgage would be paid off, and your second mortgage would receive any funds after the first mortgage payment. A second mortgage taps into the equity of your property, which can increase or decrease over time.
Advantages of taking out a second mortgage
Below-mentioned is reasons to consider taking out a second mortgage:
- Loan amount
You can borrow a large amount when you take out a second mortgage. The reason behind this is because your property secures the loan. You do not need to use your property as collateral, as you can get up to 85% of your property’s value.
- Interest rates
Once you secure your property, the risk of the lender drastically reduces. Unlike any other type of debt, a second mortgage has the lowest interest rate. Lenders (private and traditional) offer lesser rates on second mortgages when compared to personal loans that are unsecured, e.g. Credit cards.
- Tax deductions
You are subject to a mortgage interest deduction when you make an interest payment on a second mortgage. Consult an expert like 1ONEFUND Financial Group to find out more details about the tax benefits when taking out a second mortgage.
Disadvantages of taking out a second mortgage:
- Risk of getting foreclosed
One of the biggest disadvantages of a second mortgage is putting your property as collateral. If you fail to make regular payments, the lender can take your property through foreclosure, which can cause mental, physical, and financial stress on you and your family.
2. Cost of the loan
Like your first loan or purchase, taking out a second mortgage can be expensive. You will have to pay many costs such as origination fees, appraisals, credit checks, and much more. Your closing costs can easily amount to thousands of dollars.
3. Interest costs
You are paying interest any time you borrow or take out a loan. Even though the interest rate of a second mortgage is lower than the interest rate of credit cards, they are at times slightly higher than the rate of your initial (first) loan. The risks incurred by lenders of second mortgages are way more than the lender who gave you your first loan.
Schedule a consultation with 1ONEFUND Financial Group today!
For a second mortgage in Oshawa, give 1ONEFUND Financial Group a call today at 1-833-201-3863 to schedule an appointment or to find out more information.