A second mortgage is a loan for a particular amount of money which is secured by your house. In the loan, you are required to repay the loan with equal monthly payments over a set term, similar to a mortgage. However, if you cannot repay the loan as agreed with the lender, the lender can foreclose on your home.
While the amount you can borrow is mostly limited to eighty-five per cent of your home equity’s appraised value, the actual amount of your loan can also be negotiated and changed based on various factors. Lenders also tend to ask for a twenty per cent downpayment. Before settling on a lender you should compare terms and talk with banks, credit unions, mortgage brokers, and mortgage companies.
But, sometimes one loan isn’t enough.
Sometimes people’s needs are more than what a loan can provide, and they tend to fall into bankruptcy and depression due to that. This is why people tend to utilize second mortgages to save themselves from drowning in debts, due bills, and other such financially demanding situations.
About a Second Mortgage.
A second mortgage loan is basically a second loan taken against equity or property you own that has previously been, or is currently, mortgaged. The second mortgage can either be a home equity lines of credit (HELOC) or a home equity loan depending on the borrower’s needs and is utilized by the borrower for several different things. Whether you need help with your children’s education, covering a portion of your initial mortgage’s down payment, financing home improvements, or debt consolidation, a second mortgage can help you with it all.
Your second mortgage can be structured in two ways, either a standalone mortgage or a piggyback mortgage. The difference between these two is that a standalone mortgage is opened subsequent to the first home equity loan but a piggyback second mortgage is originated simultaneously with the primary loan. For a piggyback loan, you will have to pay off both of the loans at the same time, which is not ideal.
Second mortgages can also be taken in lump sums, where you are provided with a lump sum amount of money you can use for whatever you want. Regardless of which structure you use, a second mortgage can be very beneficial if used in the right circumstance and can also save your finances. Rather than drowning in debt and constantly having to use your limited cash to repay your debts and bills, taking a second mortgage and repaying those debts is an ideal task.
This will not only ensure you pay back the first loan and keep your house but will also give you enough finances to make enough money to not only pay back the second loan but also store money for you and your family’s future.
How do you get a second mortgage?
To be approved for a second mortgage, the borrower is likely required to have a credit score of 620 at the very least, but some individual lender requirements might be higher than that. Higher scores tend to correlate with better rates and can help you gain a good second mortgage. The borrower is mostly required to have a certain debt-to-income ratio, usually, it has to be lower than 43 per cent.
After being approved for the loan there are various aspects one needs to consider. Much like a home equity loan, a second mortgage takes financing charges and points into consideration, one of the criteria being the (APR), also known as the annual percentage rate which highlights the interest rate for the whole year. While applying for a second mortgage one should analyze and consider fees, this includes the equity loan processing fee as well as the application, underwriting, or origination fee.
As a borrower you have many expenses, some of them being the funding fee, lender fee, appraisal fee, document recording and preparation fee as well as a mortgage broker’s fee. So, it is important to ensure the lender you choose is worth all of these spendings and commitments.