Whether you’re considering a second mortgage to consolidate your debt or complete some home renovations, there can be a lot that goes into making this financial decision. Because a second mortgage is a loan that goes against the equity you currently have on your property, this can be a risk to the ownership of your home. If this is an option you’re seriously considering, here are some basics to know before deciding to on this route.
Higher Mortgage Rates
You may be used to the steadiness and consistency of the fixed rate on your first mortgage, but the rates associated with a second mortgage will likely be higher. Because, in the event of default, the first loan on a mortgage will be paid first, lenders for a second mortgage will charge higher rates and fees to validate the elevated risk they’re taking on. While there are lenders that can offer competitive rates, you’ll need to do your research to find one that works for you.
Mortgage Brokers May Offer More Options
If you cannot go through your initial mortgage lender to get a second mortgage, you may want to consider other lenders who may be able to offer more options. Because mortgage brokers are not working within the constraints of a single bank or lender, they may be able to find more or even better second mortgage options. While there is never a guarantee about anything in life, I strongly suggest you research all your options when getting a second mortgage!
Do You Really Need Second Mortgage Necessary?
It’s important to understand that you must have enough equity in your home to make the loan worthwhile. Because you will only be able to refinance 80% of your home’s value, it may not be worth the higher rates you’ll be paying if you’ve only been paying into your home for a short time. Before deciding if a second mortgage is right for you, make sure you consult with a professional to determine the best choice for you.
There are a number of reasons that home buyers consider a second mortgage such as paying for home renovations or consolidating debt. It’s important to do your research about getting a second mortgage since it can save you a bunch of money!
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