Second Mortgages: Benefits and Considerations
If you need a large sum of cash, there are a number of financial products that you can use to get it. If you have poor credit however, your options become much more limited. The good news is that if you have enough equity in your home, you will be able to qualify for a second mortgage and get the cash you need regardless of your credit.
What is a second mortgage?
A second mortgage is a loan. It is a way to borrow against up to 85% of the equity in your home. For example, say your home is worth $400,000 and you have $300,000 remaining on your mortgage. That means you have $100,000 in equity and you’ll be able to borrow up to $85,000.
Like a first mortgage, a second mortgage must be paid off in regular installments. The interest rates on second mortgages are usually higher however because lenders consider second mortgages to be riskier investments than first mortgages. Even though the interest rates are higher however, they are still considerably less expensive than other types of loans such as credit cards.
A few benefits of second mortgages are:
- You don’t need to have perfect credit to qualify. You only need sufficient equity in your home.
- The approval process is quick and easy.
- Interest rates are lower than many other types of loans.
- You can use the cash for any purpose you choose. (Common reasons for second mortgages include debt consolidation and home renovations.)
Why a second mortgage right for me?
If you need to borrow money and have equity in your home, then a second mortgage can be an extremely useful tool. You will be able to get the money fairly, quickly and at a much lower interest rate than other types of credit.
Depending on your circumstances however, another mortgage product such as refinancing may make more sense for you. This is why it is recommended to consult with a mortgage professional who can review all the mortgage products you may be eligible for and who can help you choose the best one for your situation.
If you are interested in learning more about second mortgages or seeing if this is the right mortgage product for you, contact us today.