If you are ever looking to borrow a large sum of money and you own your own home, one of the best options is often a second mortgage. People sometimes get a little frightened by the term second mortgage since their first mortgage is usually one of their biggest monthly payments, but really all a second mortgage is, is a loan which uses their home equity as security. Here is what you need to know about second mortgages if you are considering this type of loan.
What is a second mortgage?
As stated, a second mortgage is simply a loan that uses your home equity as security. In terms of repayment, it works much the same as a regular mortgage in which you make monthly payments with interest for the term of the mortgage. At the end of the term, you will have the option to pay off the loan entirely or to renew it for another term.
How much can I borrow with a second mortgage?
Most lenders will allow homeowners to borrow up to 80% of their home equity. Your home equity is the value of your home minus what you still owe on it. So, if your home is valued at $800,000 and you owe $500,000, your home equity is $300,000 which means you would be able to borrow as much as $240,000 with a second mortgage.
What kind of interest rate can I get with a second mortgage?
Generally speaking, the interest rates on second mortgages are slightly higher than what you’d be able to get on a first mortgage, but much lower than what you could get with an unsecured loan like a credit card or even a personal line of credit.
The interest rate that you can qualify for will also depend on other factors such as your credit rating and whether you can get approval from an A lender or if you need to work with a private lender.
What are some common reasons that people apply for second mortgage?
Second mortgages are most useful when you need to borrow a larger sum of money but also want to make sure that you get a great interest rate. While you may get a second mortgage for just about any reason you like, some of the more common purposes include debt consolidation, financing a home renovation, start up money for a business, a down payment on a vehicle, etc.
What is the best way to get a second mortgage?
The best way to get a second mortgage – and ensure that you are getting the best deal possible – is to work with a mortgage broker. Brokers have connections with many different lenders and will search to find the one that makes the most sense for your particular circumstances. They will also review your situation to make sure that a second mortgage is in fact the best option for you as opposed to other loan options (such as mortgage refinancing).
Contact Akal Mortgages today
If you are interested in learning more about second mortgages, call us today to speak to a broker.