If you are looking for a convenient way to access cash for an expense such as a home renovation or business investment or even paying off higher interest debt, then you may be considering a second mortgage or home equity line of credit (HELOC). With a second mortgage, you can borrow against the equity in your home without breaking your current mortgage.
But is a second mortgage the right product for you? The answer to this question will depend on your circumstances. Here are four facts you need to know about second mortgages before making your decision.
Second mortgages can provide a large lump sum of cash
One of the reasons why second mortgages are so popular is that they can quickly provide you with a large sum of money to use however you choose from starting a business to paying off medical bills.
The drawback is that if for some reason, you become unable to make your payments on the second mortgage, you may risk bankruptcy or foreclosure. You need to decide therefore, if you truly require a second mortgage to get the cash you need.
Private lenders are often a better source for second mortgages
Generally speaking, it will be easier to get a second mortgage through a private lender than a bank. Your best option is to work with a mortgage broker who has access to a large pool of lenders and who will be able to connect you with the lender that can best suit your needs.
Keep in mind however, that private lenders are usually willing to take bigger risks than major banks, and because of this they will often charge a higher interest rate.
You should compare a second mortgage with refinancing
If you are looking at borrowing against the equity in your home, you should compare both second mortgages and refinancing.
If you are currently near the end of your term on your mortgage and you are paying relatively high interest rates, refinancing may make more sense than getting a second mortgage.
On the other hand, if you are early in your term on your first mortgage, you would likely have to pay quite a high penalty to break it and therefore a second mortgage is more likely the better choice.
Ask your mortgage broker to compare these options for you to determine which one is most cost-effective.
You should have an exit strategy
Having your mortgage fully paid off will bring a lot of financial freedom – and while a second mortgage can help you in a time of financial need, it will mean taking a longer time to pay off your first mortgage. Therefore, it is a good idea to plan how you can pay off your second mortgage as quickly as possible. Talk to your mortgage broker about how you can do this.
If you are considering a second mortgage, call the experts at Akal Mortgages today at (416) 621-1300.
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