At first look, second mortgages may not sound like a good idea. Especially if you are someone who’s still paying their first mortgage. Taking another loan on top of that would make you wonder how will you manage your monthly financial expenses if a good chunk of your paycheque is going away just on paying back your dues. However, this might not well be the case and with a second mortgage not only will you have some extra funds in your hand to pay off your primary mortgage, but finally, you may be able to complete that renovation work that you kept delaying. For you to have a better understanding, here are 5 reasons why you should apply for a second mortgage.
The 5 reasons that may change your mind about second mortgages
- Low-interest rates: Second mortgage loans generally come with a low-interest rate when compared to other types of unsecured loans. If you unsecured loans against credit cards or from a bank, you may notice that the interest rates are very high. However, this is not the case with second mortgages as the lender would not want to keep them on their books for more than a year or two. They want the mortgage to be paid at some time or refinance the loan the renewal for the first mortgage comes up. Also, since with second mortgages you put your house as collateral the starting interest rates can be as low as 6.99%.
- Pay-off your existing debts: You can wisely use the funds of the second mortgage and pay off your other loans. These could be education loans (which take a tremendous amount of time to pay back), car loans ( if you miss one of the payments, the interest rate, as well as the fees, can shoot up and can negatively impact your credit score). As second mortgage loans come with low-interest rates, you can use the fund to clear off your other dues and then slowly pay off your second mortgage.
- Renovate your property: Renovating your property is another great way to use the funds of your second mortgage. You can change the look of your living room, remodel your kitchen and much more. This will not only improve the visuals of your property but also increase its market value. If you’re planning to sell your home in the future, you can get a good price on it.
- Invest in another business: If you want to make your mark as an entrepreneur and start a new business, the funds from a second mortgage may be the most appropriate means of financing it. You might be thinking of taking up a small business loan, but the interest rates on them are very high. In some cases, you might need to have an already established business to qualify for this type of scheme, especially in a tight lending environment. You can use your home equity to secure a second mortgage as seed money. However, you should see to it that your business is based on a solid foundation and has a market for your products. It's only a good idea when the potential reward is greater than the risk involved.
- Invest in your child’s future: This is another beneficial usage of the funds of your second mortgage. With tuition costs for higher education on the rise year-after-year. It might be a wise decision to save the funds for your child’s aspirational goals.
Quick turnaround time
One of the major advantages that come with a second mortgage is, they are processed quickly and you get access to the funds you need as soon as possible. Second mortgages have always got a bad reputation because they are considered as the extra loan on top of your primary mortgage. However, if you know how to use them correctly, they can be the ideal financial solution to help you achieve your financial goals.