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The Benefits of Having a Second Mortgage

Generally, second mortgages have a bad reputation without deserving it. This is primarily due to the reason why would someone apply for another loan while the first loan or the primary mortgage hasn’t been paid off yet. However, the reality of it is that second mortgages can help you pay off your first mortgage faster, and also if there are funds left, use them on other ventures such as investing in home improvements (this can improve the market value of your home), also pay off expensive medical bills, just to name a few. But before we get into the advantages of a second mortgage, let’s understand what is and how does it work?

Second-mortgage- A short-term loan

That’s right, you can consider a second mortgage as a short-term loan where you use your home equity as collateral. The same equity that you had built by paying off your primary mortgage. Before you think, ‘that sounds risky’ think about it first. You will have quick access to funds that you can use in case of an emergency and the loan would be at a loan interest rate and also for a short time period. That means you won’t have to bear it for years on.

Coming to how the loan works, suppose the appraised market value of your home is $300,000 and you still have around $100,000 of your primary mortgage still unpaid. Then the equity amount that you can use is $200,000. Keep a note that you can’t use all of the equity and for more details on this matter, discuss it with your mortgage broker.

Advantages of a second mortgage

There are numerous advantages of applying for a second mortgage loan. We have discussed some of them in the list below, have a look.

  • Debt consolidation: You can use your second mortgage funds to clear off your high-interest debts which can be in the form of credit card bills or bad loans or medical bills. You can bring them all under your second mortgage loan and then pay them off quickly. The interest will also be very low for this choice.
  • Low-interest rate: As you will be securing your second mortgage using your home as collateral, it is likely that you would qualify for a low-interest rate. With lower rates, you will be paying less over time on interest and this can help save money on major expenses.
  • Extended period if needed: Generally, second mortgages come with a short repayment period, but if you want to keep your monthly payments at a low you can extend the loan repayment period.
  • Tax benefits: If you’re using your home equity for buying, building or renovating your home, then your interest payments can be tax-deductible.

As a line of credit

It’s possible to borrow a second mortgage using a line of credit as well. With this option, you don’t get a lump sum amount but have access to a pool of funds that you can use whenever you want. There will be a limit to the loan and you can borrow as many times till the maximum limit is reached.

We hope this blog post has given you a better understanding of a second mortgage. If you’re keen on reading similar topics, keep an eye on this space.

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